Keesa Schreane [00:00:00] Hi, everyone. This is Keesa Schreane. And today we're going to talk about the role that sovereign and sub-sovereign actors play in building resilience, especially as it relates to climate resilience with a growing frequency of natural disasters and extreme weather events in the U.S. and abroad. The importance of collaboration involving all stakeholders, from corporations to investors to cities and sovereign actors is moving to the forefront. Here to discuss the future of climate resiliency and the role of government at investors is Joyce Coffee, president of Climate Resilience Consulting. Joyce, thank you for joining me.  

Joyce Coffee [00:00:42] Well, thank you so much. It is a huge pleasure to be here. I'm just thrilled about the incredible content that you share with your audiences.  

Keesa Schreane [00:00:48] Well, thank you so much, Joyce. It's wonderful. And let's just jump right into it. Could you let us know what is the role of government, of sub-sovereign actors in terms of climate change and what role do they play in this resiliency building that we talk about?  

Joyce Coffee [00:01:04] Well, that's just a really important question and sort of my life's work. And I think it's really valuable for us to first start with a bit of level-setting about what these governments face. For instance, in the US, disaster costs over the last five years have exceeded five hundred and fifty billion dollars. And this is a record. And here in 2020. Even though we are only in October, there have been 16 weather, or we could call them actually climate disaster events, with losses that exceed one billion dollars each. And that's also a record. And that's, by the way, as of October 7th. So it doesn't include, for instance, the recent tragic fires in Colorado. So there's a lot at stake. A lot of being lost. And just to sort of making that clearer with one example, in a particular sector, we know that the economic losses and social disruption of rising seas and on coastal housing may happen gradually. But this is a quote from Fannie Mae. They are likely to be greater in total than those experienced in the housing crisis and great recession. So some people feel like we may be heading towards the next big short and even Blackrock, just to kind of make this a fine point for the finance sector, has said that climate, the credit climate crisis is reshaping finance and it presents one of the highest sustainability-related risks and highest risks overall for portfolio. So governments are grappling with that. And just to, you know, end here for a moment on what governments do around climate action.  

Joyce Coffee [00:02:43] We have to remind ourselves that they set and enforce policies. They provide data and information, and they communicate and pay for stuff, obviously, including extracting taxes and rates and then using that money for things like infrastructure. And in particular, I'll just mention a few quick things that state governments and local governments or the sub-sovereign level do for climate action that influences the private markets. Number one, states create plans and local governments create plans that assess risks, set priorities, engage stakeholders. Right. Number two, they create standards, for instance, for infrastructure, highways and roads, transit systems, buildings, water systems, all the things that the private markets rely on to serve customers and provide services. And three, they create resilience policies for regulated sectors. And at the state level, could be like electricity, water and waste to utilities. So all of our service delivery, the critical infrastructure, infrastructure, insurance, real estate, finance, all that regulation is, I think, a part of what states the role that states play in building the climate resilience paradigm for the private sector.  

Keesa Schreane [00:04:06] And thinking about that, I'm thinking there has to be always a level of evolution there to add a bit of, I guess, a challenge to what you just told us. So understanding that the role is to set policy. The role is to provide data and information. But we know that scientific findings are always changing and evolving. Policies around climate change are continuing to evolve. What role does evolution play here in terms of the work that these government entities are doing?  

Joyce Coffee [00:04:34] That's a great question. I mean, I think the most impressive evolution is that especially local governments where the rubber really hits the road when these natural disasters strike are evolving because the crisis is growing. So they're evolving by having to apply essentially mainstream finance and mainstream funding to new. And growing risks. And this is really, I think, impressive from the perspective of government versus the private sector because cities cannot pick up a leaf. They cannot move the chessboard pieces to a less risky place. There really is no outrunning climate change. But in this evolutionary stage, many private market players are able to move. And that's really, I think, a distinct difference between the government and the private sector.  

Joyce Coffee [00:05:27] But on the other hand, there is an edge of innovation that cities are developing in order to pay for the serious risks that they face now or will in the near future. And I think that's a really huge part of evolution, right? The edge of innovation on the finance side, which we can get into in a moment. But I also wanted to be sure that we acknowledge that another thing that's really key for the evolution of cities is that we crack the code on creating social equity. If we do not, the disproportionate impacts of lower resourced Americans and of course, this would be true of anywhere in the world will become even graver. So we owe it to ourselves to ensure that the evolution means that social equity and financial equity create transformed systems in this new era where those communities that are most at risk because of where they are sited, death by zip code, or what their health implications are or what their jobs impact is. Resilience would define their lives as being improved through government and even private sector actions that help to build climate resilience.  

Keesa Schreane [00:06:42] Wow. So we about cracking the code on social inequalities for law resource communities who are seeing greater consequences is not really something that we can talk about in the future tense. They are definitely seeing that. Wondering where is the money coming from? So we have all of these warranties and everything sound just to be such a priority. Where is the financing coming from? We talk about innovative financing. Let's build more to that.  

Joyce Coffee [00:07:09] OK, well, let's just talk first about local government, where the money is coming from for that, because, you know, I am really focused on that question. And I think many private sector listeners would be reflecting on the fact that generally, they do rely upon their local services. So local government strategies for financing resilience include about six things. One, they're generating local revenue. Right. This is taxes and rate paying, too. They're imposing land use costs. Three, they're embedding resilient standards into future infrastructure investments. Right. And this is like the lower hanging fruit of ensuring that procurement policies and engineering standards all assess and then address climate risks and for their leveraging development opportunities. And maybe we can come back to this because this is really, I think, a portion of how that the private and public sectors work together around resilience. And five, they're exploiting federal funding. If you've been in a disaster declared environment, you've heard of FEMA funding. That's the Federal Emergency Management Agency flooding into communities. Also funding from, for instance, Housing and Urban Development. That's HUD. They do a community development block grant for disaster recovery and for mitigation. So there are funding missions that are part of disaster recovery. There are a very small number of funding missions from the feds that also deal with what we would call pre-recovery or preparation or resilience that are also in those two departments.  

Keesa Schreane [00:08:48] So diving into leveraging development opportunities, it sounds very interesting stuff.  

Joyce Coffee [00:08:54] OK, great. Well, there are a few things. One is that you know, states and cities can really help with inventories of must-do projects. And those projects are, in fact, really where development money could make a buck because often they have a great credit rating associated with them or they already have the first flush of risk taken away by some government mechanism. So I think we have to remind ourselves of the sort of private investment leveraging mechanisms that come with these development opportunities. So governments, for instance, can set up incentives, standards and regulations and even targeted sectors that they say, hey, we really think that this sector is crucial for our government group providing critical infrastructure and ensuring that we don't have a failure in the systems that our citizens or our ratepayers, our taxpayers and our voters rely on. And by the way, just to be sort of upfront about those targeted sectors, we might get into this in a moment about where are the opportunities.  

Joyce Coffee [00:10:12] But I mean, sectors including real estate, which faces some of the greatest risks in the climate change future. And I mean, for sure, engineering and construction, which has grown exponentially with those billion-dollar weather events I mentioned at the start of our conversation. And I also mean the financial services industry. Insurance is a sector, for instance, in California, where they have a new climate-smart insurance product database. Right. There's there are chances for innovation for those who serve government, just as there are chances for innovation within government.  

Keesa Schreane [00:10:50] So we talk a lot about the government here, which is great. We have a clear understanding of that aspect. Let's talk about opportunities for investors. What should their perspectives be? What should they be thinking about?  

Joyce Coffee [00:11:00] Yeah, well, I think there are a few things. Number one, investors who are already savvy enough to be listening to your podcast have likely heard about the task force on climate-related financial disclosure TCFD. It had about three years ago set forth guidelines for how investment community leaders should be grappling with climate risks. And those guidelines were new in several ways. But the most, I think, important for our conversation today is that the guidelines spelled out that investors should be assessing the physical impacts of climate change on their portfolios. In the past, in the last decade. We've seen investors really focus on the potential risk of, for instance, a carbon tax or cap and trade. And then they've also focused on the potential risk that they might, as consumers, the transition away from these fossil fuel industry. For instance, they might have stranded assets in their portfolios. But this was new because the guidelines are actually saying you need to understand both the physical acute risks and the physical chronic risks that your portfolios face. And then also, of course, you need to understand what the opportunities are that those risks provide, because as I mentioned before, I mean, investment community especially, you can move your chessboard around. And so I think, you know, this is really a chance now for us to think about how that risk assessment, which is the first principle, really, of any leader in any sector, you have to assess your risks according to the boundaries and dependencies of whatever asset is you hold in your portfolio. And then once you assess them, you have to address those risks. And that, there are a whole bunch of risk reduction measures that can be taken. Each one of them, of course, is a business sector that can grow. So maybe it would be worth me going out just a few of those sector opportunities. Would that be of interest to your listeners? 

Keesa Schreane [00:13:06] Sector opportunities, as well as diving into the risk assessment, I'm looking for the top three or top five. Let's say, I'm an investor. How do I go about doing that?  

Joyce Coffee [00:13:14] OK, great, great. Well, I think the first thing about risk assessment is understanding what the hazards are we're talking about here, right? We're talking about flooding and that's coastal flooding, storm surge - related. That's river flooding, which actually takes more properties and causes more distress than coastal flooding does, even though it doesn't have the same appeal and doesn't make it in the headlines quite as often. So those two types of flooding as well as heat, extreme heat is actually the biggest pillar in the climate change media. And, you know, will have a growing impact. So there's I think those are the things that you have to assess as your hazards. Right. More rain or more precipitation when you don't need it less when you do the drought. Questions there, too. And then, too, is heat. And you know, all the knock-on effects of all of those things, that wildfire is part of that, obviously. So is a change in, you know, where ecosystems are allowing for certain crops to be grown. So the agricultural sector is another really big one for an opportunity as well as risk in this case. So knowing where your risks are and then number two, I mentioned earlier the question of boundaries and interdependency. So you are one of the reasons why cities are really crucial for this is that they provide data and information. And if you have assets, that information needs to be very granular. It needs to be at the scale of like a block or even a property index number. Right. So knowing what the boundary is for your risk is, I think, really important. And then three. And this is where it gets a little stickier because those first two things I said, any risk assessment manager in the C suite. Worth their salt is already doing that. Right. They identifying what the risks are and then what the boundaries are for those risks within their portfolio. But the third thing I think is really hard, and that is that climate change is all about predictions and scenarios. So it's a little bit like a cyber risk in that regard. And those predictions and scenarios really emerge out of what pathway we are on for greenhouse gas emissions. So already climate change is baked into our systems. So we can already say, well, we're going to use the scenario that has temperatures increasing, you know, by two degrees Celsius. But then beyond that, if you have an asset that you're holding for 10, 20, 30, or in the case of infrastructure, a hundred years, even though it might not be in your portfolio for that long, it's been used for that long. You need to be asking like, wow, what if we go to five four degrees Celsius? What does that mean?  

Keesa Schreane [00:15:54] This and this is all big stuff and all very useful information. So first of all, climate change is reshaping finance, and that's just where things are there in terms of crises. They're growing and governments really are positioned to provide mainstream financing to meet these crises and these risks. Where does the money come from? The government money comes from climate finance, local revenues such as taxes, land use costs, as well as leveraging development opportunities. And federal funding like FEMA and HUD are great places to look at in terms of where the money comes from. In addition, what are some of the things that investors should really think about? Joyce, you're saying that it's assessing the physical risk of climate change. That means acute and chronic risks and really assess where the opportunities are. So opportunities can be understanding, first of all, what are the hazards? What are the sectors? We talked about flooding and extreme heat being some hazards and really understanding the knock-on effects on what sectors are impacted by that agriculture sector being one, knowing risk boundaries, very important for institutional investors, and also being ready to make predictions and understand scenarios. Joyce Coffey, president of Climate Resilience Consulting, thank you so much for joining us.  

Joyce Coffee [00:17:13] Thank you so much. That was brilliant. Take care.