Transition Finance Weekly - October 3, 2024
Helene Shows Climate Impact is Everywhere, Hits the Power Grid, Strains Insurers
1. Hurricane Helene Ravages Cities and Towns in Six States
Will the devastation change the way Americans think about climate change? It might.
Last weekend’s powerful Category 4 storm wrought over $100 billion in “biblical” damage, and killed at least 160 people, with hundreds more missing.
Asheville, far from the coast and high in the mountains, has been considered a “climate haven,” but 29 inches of rain destroyed the downtown Arts District and thousands of homes and businesses. Only 1% of buildings in the area are covered by flood insurance, and local governments have been using 10-year-old flood maps, even as they’ve added thousands of residents in dangerously low-lying areas.
What we need: climate preparation and resiliency investment, in places like Asheville and everywhere else in America.
Storm cleanup worker Kyle Lowder: “I am guilty of thinking that Asheville and this area is a little mountain oasis that’s kind of immune from the worst effects of climate change …. And that perception has definitely been shaken up and clarified.”
2. U.S. Insurers Can’t Keep Up With Climate Impacts
Hurricane Helene will go down in history as one of America’s costliest storms. And climate disasters will ramp up steeply over the coming decade. Who’s going to pay?
Forecasters anticipate Helene disaster recovery will cost up to $110 billion. Within 4 days of landfall, State Farm and Citizens alone had already received 60,000 homeowner and auto claims.
America is several years into a mounting insurance crisis. And Florida is at the center. Climate events have meant spiking premiums, and more than 10% of Florida homeowners are uninsured.
The Florida Hurricane Catastrophe Fund (FHCF) is nearly insolvent, and needs to borrow $3.8 billion. State pension funds have invested in high-risk catastrophe bonds, and Citizens, Florida’s insurer of last resort, has already been flagged as financially unsound.
Carolyn Kousky of the Environmental Defense Fund: “Insurance is where many people are feeling the economic impacts of climate change first. That is going to spill over into housing markets, mortgage markets, and local economies.”
3. Power Grid Storm Damage Can’t Be Easily Repaired
Helene knocked out power across the Southeast; recovery will strain the supply chain.
Helene brought down nearly the entire transmission line infrastructure in Georgia and destroyed substations across the Southeast, cutting power to millions of homes and businesses.
The scale of damage means some power will be out for months: 360 substations are out across North Carolina, and rebuilding them will strain the supply chain for grid equipment like transformers.
We’ve seen this before: Hurricane Irma in 2017 knocked out 80% of Puerto Rico’s electrical grid, and net generation took more than a year to return to pre-storm levels.
Helene hit the supply chain in other ways, too, shutting down a pure quartz mine that the world’s semiconductor and solar industries depend on.
4. Newsom Signs Climate Disclosure Bill
America’s most ambitious climate disclosure rule raises the regulatory floor.
On Tuesday, California Gov. Gavin Newsom signed SB 219, instituting new and aggressive climate disclosure regulations on corporations.
The Climate Corporate Data Accountability Act builds on laws passed in 2023. Taken together, the laws require corporations who do more than $1 billion of business in California to fully disclose Scope 1, 2, and 3 emissions, and companies above $500 million must report on their climate financial risk.
The strict Scope 3 stance, and the number of companies affected, makes this a transparency game-changer, bringing the U.S. more in line with other countries’ reporting requirements.
5. The Municipal Bond Market Is at Risk
Climate impacts are leading local governments to default on their debt, raising borrowing costs.
Wildfires, floods, and other climate impacts are raising costs, cutting revenues, and reducing the tax base for U.S. municipalities, increasingly leading to debt defaults. The city of Clyde, Texas just defaulted after a drought reduced water revenue, and cities in California, Florida, and elsewhere are all seeing climate drive up borrowing costs.
Things won’t get easier. Climate shifts will require tens of trillions in new debt issuance worldwide by 2030, raising interest costs for governments and reducing the money available for operations.
Credit agencies don’t currently take long-term climate impacts into account when making bond ratings, but given the increased frequency of climate events, they likely will soon.
6. Missouri Gives Up
After losing its anti-ESG battle in court, John Ashcroft declines to appeal — and has to pay SIFMA’s legal fees, too.
Last month, a district court struck down Missouri’s anti-ESG investment rules. The judge agreed with SIFMA that securities regulation is a federal matter.
Now, Secretary of State Jay Ashcroft has withdrawn his appeal — and taxpayers will be on the hook not just for the $1.2M Ashcroft spent hiring outside counsel, but for an additional $500,000 toward SIFMA’s legal fees.
After recent court losses, such as one in Oklahoma, the tide may be turning on anti-ESG rules, which cost investors and taxpayers. Even Republicans see that: Wyoming’s GOP governor Mark Gordon struck out similar rules to Missouri’s in a line-item veto in February.
TRUMP’S PROJECT 2025 WOULD EVISCERATE THE EPA
The right has a playbook to effectively kill the EPA’s ability to protect our health and environment if Donald Trump wins a second term, including slashing civil service protections so that Trump’s team can replace career professionals with loyal political appointees.
“They’re certainly viewing personnel as policy,” said Pleiades’ Frances Sawyer. “The personnel side, and what they’re hoping to accomplish in terms of eroding basic health and safety regulations, is deeply tied together.” Employees at the EPA have deep scientific and policy expertise with knowledge of climate and resiliency, toxicology, and air and water quality science. Eroding government capacity puts clean air, clean water, and public health at risk.
