Is the Houston region doing enough to convince key stakeholders that it is taking Hurricane Harvey and more generally climate risk, seriously? In some recent meetings I have attended, the answer seems to be trending to no. There is significant growing concern that the Houston region is not going to take the necessary steps to mitigate against future climate risk whether that is flooding, extreme heat and drought. Although Harris County appears to be taking some action, there has not been a lot of action taken by other jurisdictions. In some cases, it appears to be business as usual.
Houston industry has a lot to lose if it appears appropriate actions are not taken to mitigate climate risk. Highly talented individuals needed for a diverse and robust economy have choices. Will those already here choose to stay, particularly those that are tied other industries other than oil and gas? Further, will our existing companies be able to attract new talent if it is business as usual in regards to mitigating climate risk?
Not only should we be thinking about the viability of our existing businesses and economy, but we must also consider how lack of inaction impacts future investment. The question of whether Houston is doing enough is not only coming from businesses that are already located here, it is also coming from businesses and investors that consider investing in the region. Much of corporate America believes in climate change and see that real risks exist. Decisions are being made as to whether to invest in certain geographies and industries based on environmental and climate risk.
Moody’s Says Texas at Risk
The consequences of a lack of inaction became much more real in November. Inaction to mitigate climate risk for states and communities that are seen as vulnerable is getting the attention of credit rating agencies. For the last couple of years Moody’s, one of the three primary bond rating agencies, has been working on how to include climate risk vulnerability in its bond ratings for state and local governments. In November it made an announcement that it will start taking account of climate risk in its credit ratings.
To date, climate risk had not been a factor in bond ratings. This is a little disconcerting when you are talking credit-worthiness of large, long-lived infrastructure projects whose performance is highly likely to be influenced by near-term climate shocks. With climate shocks, such as floods, droughts, extreme heat, fires, etc., communities are displaced and businesses are disrupted. If people locate elsewhere and businesses cannot operate, tax revenue goes down. At the same time, while revenue decreases need for investment to rebuild increases. Less revenue will be available to pay for existing debt service, as well as to cover new debt service for rebuild efforts. Ability to pay back existing debt decreases and creditworthiness is in the toilet. This makes it much more difficult to borrow at an affordable rate.
What Moody’s has done is a shot across the bow to four states, Texas being one of the them. It has not provided a timeframe as to when exactly climate risks will be used directly to measure credit risk. However, it is clear that climate risk is being tracked. It is likely to play a role in the very near term.
When looking at climate risk, Moody’s will focus on multiple factors including, share of economic activity in coastal areas, hurricane and extreme weather damage over the last several years, and percent of properties located in a floodplain. These factors only cover a portion of a community’s risk, primarily short-term, high-intensity storm events. It does not take into account the risks to a community from extreme heat, long-term drought, disease vectors, etc. All of these factors impact a community’s economic productivity and infrastructure performance. They should be quantified in a manner to be included to some degree. However, it is a good step forward.
Work Being Done Along Gulf Coast
There are a growing number of initiatives in the Houston region that are pushing for change to address climate risk. My employer, HARC, is currently developing the Community Adaptation and Resilience Alliance (CARA). CARA is being developed to work toward real, region-wide efforts to mitigate climate risk, from flooding to extreme heat to drought. CARA is looking to coordinate strategy and planning efforts across the region, bring resources and build capacity. Through this effort, we have identified a large number of efforts that are responding to Hurricane Harvey. It is key to keep this momentum moving ahead. Also, we must move the focus beyond Harvey and flooding and include a more comprehensive, holistic approach that can identify and work toward solutions to the multitude of climate threats we are currently experiencing and will encounter in the near-term. Maybe it will happen. The Sustainability Director for the City of Houston, Lara Cottingham, was on Houston Public Media, talking about a Climate Action Plan this week in reference to the Moody’s report. This is a first. Maybe we have turned a corner.