Climate-induced economic damages ticked down slightly last year from 2024’s record $1.4 trillion, as fewer major hurricanes made landfall.
Notwithstanding that minor blip, the cascading effects of climate-related damages are starting to show up across the US. Insurance premiums are rising in higher-risk regions, while three-quarters of the country’s hottest real estate markets are in low-risk areas.
“There’s your chain of dominoes,” says BloombergNEF’s Danya Liu. “Climate risk pushing up insurance prices, which then pushes down property values, which then could destabilize local government finance” (for background see, “LA wildfires push California’s insurance market to the brink”).
At last week’s BloombergNEF Summit in San Francisco, Liu presented a county-level map of risks and resilience that could serve as a guide for home buyers or businesses considering a move and for assessing the stability and yield of local municipal bonds. Liu said adaptation solutions represent sponges to help the economy absorb climate shocks.
“Adaptation is not just policy,” Liu said. “It is balance sheet protection helping us turn more systems of dominoes into sponges.”
Beyond hedging
Portfolio managers have primarily responded to climate risk with financial solutions, such as insurance and catastrophe bonds that can spread risk, but not reduce it (see, “Innovations in ‘risk transfer’ for climate-vulnerable communities”).
“I don’t think most of them are investing in hard adaptations right now,” Liu told ImpactAlpha.
As insurance becomes unaffordable, momentum will grow for the next tier of solutions, such as sensors, early-warning systems and other predictive technologies. The bankability of engineering and infrastructure adaptions projects that actually reduce physical risk remains a challenge, even when broad economic benefits are clear.
“There’s no good, established methodology for showing payback for these hard adaptations,” Liu said.
Pay for success
On the shores of Lake Michigan, Milwaukee is tapping private credit build green stormwater infrastructure, reports HIP Investor’s Nick Gower in the latest column in his “Resilient Capital Stacks” series on ImpactAlpha.
Last summer, a massive storm caused the release of over five billion gallons of sewage into the local watershed. The Milwaukee Metropolitan Sewerage District has set a 2035 goal of capturing 740 million gallons of stormwater each time it rains.
The sewer district partnered in 2020 with Corvias Infrastructure Solutions to develop pay-for-success stormwater capture projects in partnership with private landowners, using a revolving private credit facility backed by Goldman Sachs’ Urban Investment Group.
Corvias takes on the early development and construction risk, and is repaid by the sewer district after certification of the gallons of stormwater captured by each project. Property owners can also contribute through “gallon purchase agreements,” blending private matches with public payments.
The financing structure “better matches the reality of distributed green infrastructure,” Gower says, “in which dozens of mid-sized projects come online over several years rather than all at once.”
