MRSC has joined with Phil Olbrechts, Attorney, Ogden Murphy Wallace, Pat Dugan, Dugan Consulting Services, Arthur Sullivan, Program Manager of ARCH (A Regional Coalition for Housing), and Anindita Mitra, founder of CREÄ Affiliates, LLC, to bring you the "Planning Advisor" article series on planning and growth management issue affecting Washington Local Governments. The "Planning Advisor" will feature a new article each month with timely information and advice you can use.*

Finance Industry and Climate Change:
Potential Implications for Cities and Counties

August 2008

Anindita Mitra, AICP
CREÄ Affiliates, LLC

While they may have joined the dialogue late, and until recently remained largely skeptical, the finance industry is rapidly making up for lost time and investing a lot of time and resources to determine how they can be better positioned to reduce the impact of climate change on their industry. The leading companies in the finance industry believe that the science is indisputable. They have started to track the phenomenon and have been getting organized to address the issue collectively. If your community has not yet felt the repercussions from the finance industry's new focus and concerns about climate change, there are many indications that suggest that it won't be long before it does.

According to the Munich Re (Munich Reinsurance Company), the world's largest insurance and reinsurance company headquartered in Germany, the 960 natural catastrophes in 2007 were up from a record 850 in 2006. Even though none of the disasters in either years could be classified as "megacatastrophes" like the 2004 Tsunami in the Indian Ocean or the Rita/Katrina disasters along the Gulf Coast in 2005, the breadth and scope of damage over the course of the past two years has sent shock waves throughout the insurance industry. In 2007, the industry was left to deal with a bill of $30 billion in losses - about 35% of the total $82 billion losses from natural catastrophes that year.

The Association of British Insurers, the UK's leading financial services trade association also claims that weather-related losses are significant and now outpace trends in population growth and inflation. Atypical weather now drives a 2-4% annual increase in UK property losses. Evan Mills, a scientist at the US Department of Energy's Lawrence Berkeley National Laboratory comments that insurers who have studied climate change see more burdensome cost from inaction than prudent action.

This was echoed by 25 world renowned US economists who after the U.S. delegation failed to commit to curbing greenhouse gas emissions in Montreal, wrote to President Bush that the rising costs of weather damage and agricultural losses related to climate change far outweigh the price of curbing emissions.

Other business leaders are realizing the wisdom and prudence of acting early and decisively. The Prince of Wales Business and Environment Programme along with the University of Cambridge Programme for Industry have assembled a Corporate Leaders Group (CLG) on Climate Change, comprising leaders from major UK and international companies. In Bali in 2007, this group wrote that, "As business leaders, it is our belief that the benefits of strong, early action of climate change outweigh the costs of not acting." In an unusual statement, the CLG writes that, "The private sector and governments are in a 'Catch 22' situation with regard to tackling climate change, in which governments feel limited in their ability to introduce new climate change policy because they fear business resistance, while companies are unable to scale up investment in low carbon solutions because of the absence of long-term policies."

The business industry recognizes that climate change could disrupt supply or distribution chains; impact the availability of raw material; damage physical infrastructure; cause unprecedented human losses; stimulate expensive new regulation; or increase costs of withstanding or rebuilding from the more devastating natural catastrophes.

At the same time, companies appear fully aware that by establishing a "first-mover advantage" as described by Janet Kersnar, Editor-in-Chief of CEO Europe, they can take advantage of the potential opportunities presented by climate change, such as early entry into new or advanced technologies; as well as smart investments in reducing greenhouse gas emissions - thus lowering not only energy expenditures but also potentially averting the number and intensity of future disasters. There appears to be a general concurrence that being environmentally and socially friendly reduces risks, lowers the exposure to financial liability from lawsuits, lessens the fear of carbon taxes or other financial mechanisms to control greenhouse gases (GHGs), and reduces the likelihood of companies being required to undertake costly changes in their operational practices or infrastructure due to regulatory changes.

These considerations have played out in interesting ways. A report, "Climate Change and Governance Checklist" by CERES describes their research of businesses across the world for their climate change related actions and policies. CERES reports that businesses have been:

• Sponsoring research;
• Calculating, disclosing and setting internal GHG reduction targets;
• Signing onto the Carbon Disclosure Project (an independent non-profit organization that records information on corporate climate risks and opportunities on behalf of an investor coalition of 315 firms with a combined $57 trillion in assets);
• Creating committees and task forces focused on climate change;
• Initiating renewable energy friendly procurement policies;
• Establishing climate specific lending policies;
• Developing consistent climate change related risk management policies; and
• Trading under the European Union Emissions Trading Scheme as well as the Chicago Climate Exchange.

Non-governmental organizations such as the Rainforest Action Network (RAN) and CERES are putting additional pressure on corporations to demonstrate greater environmental responsibility. RAN aims to remove financing from projects that negatively impact the environment. CERES, a non-governmental organization and the Investor Network on Climate Risk (representing nearly $4 trillion of assets) are pressurizing corporations to take appropriate action with respect to climate change issues. Pressure is coming from another source - shareholders - who are now demanding greater disclosure of risks presented by different investment opportunities.

Many companies have put programs in place that anticipate some sort of regulation to control and offset GHG emissions. Many feel certain that in the US it could be in the form of a cap-and-trade system where companies are issued a limit as to how much GHGs they can emit. Those wishing to pollute more must purchase credits from companies that have lowered their emissions. A less complicated and more easily monitored system is a carbon tax that is applied at the individual business level and is based on the carbon content of emissions, mostly from fossil fuel burning. If administered appropriately, both programs have the potential to raise significant amount of funds for environmental protection and renewable energy programs.

Opportunities for Municipalities

So what implications do all of the above have for cities and counties? It seems that in addition to demonstrating social and environmental stewardship, by planning for climate change, cities and counties could reap generous economic rewards as well. The actions taken by businesses, as reported above, suggests that those cities and counties that develop plans for adapting to, minimizing and mitigating damages from climate change related events may pull ahead of others that lack such initiatives. This advantage could come into play, for instance, when applying for municipal bonds, or by reducing the cost of development, they could be assigned better insurance ratings. Similarly, those jurisdictions that are pursuing alternative and renewable energy programs may find that not only are more funds available for such projects but that they can capitalize on this trend by developing an economic development niche in manufacturing, assembly and professional services related to a burgeoning renewable energy technology sector. Lastly, it appears that by developing the plans with public input and making the plans available for public review, financial investors will be reassured by the jurisdictions' apparent transparency and support of full disclosure.

To respond to the finance industry's increased wariness about climate change fallouts, what steps could cities and counties take to demonstrate greater responsibility and responsiveness to climate change?

1. Map Climate Change Fallouts - Tracking and mapping known and anticipated damages from climate change provides assurance to lenders that their investment into a particular project will not contribute to nor be adversely affected by climate change. This will also help these jurisdictions keep private development away from or restrain it in known hazardous areas - thus greatly benefiting private development by lowering their project financing and insurance costs.
2. Synchronize Policies with Maps - Synchronizing the above climate change maps with land use and development plans and policies to minimize potential damages assures lenders of due diligence on the part of applicants to promote projects in locations that are environmentally sound.
3. Update Codes -Not only could more rigorous codes potentially minimize the damage from disasters, thus increasing funder confidence; they could also reduce energy expenses in building operation and maintenance.
4. Have a Hazard Mitigation Plan Ready - Should a community be confronted with disaster, it would be reassuring to lenders as they consider funding for rebuilding, to know that the community demonstrated extraordinary leadership and foresight by having a mitigation plan to guide future redevelopment of the area. To know that rebuilding will occur expeditiously with pre-defined solutions and organizational structure to alleviate disruption to food and water supply or to utility provisions; relocation of development from chronic hazardous locations; or alleviation of higher utility costs; will encourage lenders to invest in one community over another.
5. Coordinate All Efforts - using the above information and strategies, develop a coordinated, comprehensive and clear climate change strategy for your jurisdiction. This strategy should include approaches to minimizing potential climatic changes, responding to disasters, and mitigating damage created in the wake of a disaster.

Must every jurisdiction take on this extra effort? I would say no. There are many ways to deal with our future. As a planner who continues to see the benefits of good planning I would lean towards foresight, deliberation and forethought. With the right planning, much of the angst and intensity of impact can be reduced and recovery can be handled expeditiously and efficiently. Another approach would be to wait and see - that would entail afterthought, reparation and hindsight. Different leaders approach situations differently. It is really a matter of choice for each community.

For those of us in the sustainability arena, even though we saw the signs, climate change seems to have hit us suddenly and really hard. Strategies for climate change are not that divergent from principles and strategies for sustainable communities. The distinction from sustainability practices is that with climate change, the location, intensity and type of damage inflicted are currently unpredictable. With additional funding into the earth sciences hopefully in the next decade or so perhaps we will have access to more in-depth information and a modicum of predictability in our planning for climate change. Until then, there is much that all of us can do through responsible development policies and incentives to minimize potential damage and human tragedy that has to date been associated with climate change.

Pat Dugan has a unique combination of experience in both planning and public finance, spanning 35 years. As a planner, he has been a planning director in two cities (Auburn and Burien), and two regional planning agencies in Oregon and Washington; and was a planning manager in Goleta, California. In public finance, Pat has served as the chief financial officer in four public agencies including the Cities of Auburn and Lynnwood, and the Snohomish County Public Works Department. He has written extensively on financing capital facility programs and on public finance for planners. Pat now offers planning and public finance consulting services and in his own firm, Dugan Consulting Services in Everett and can be reached at consult.dugan@verizon.net.

Anindita Mitra, AICP is the Founder of CREÄ Affiliates, LLC a planning and urban design consultancy that focuses on creating awareness of unsustainable practices, and offers a platform for affected parties to openly communicate and collaborate to arrive at creative sustainable solutions. She is also one of the Co-Chairs of the Climate and Sustainability Initiative of the Washington Chapter of the American Planning Association. Anindita's current interests include the development of sustainable master plans and streetscape designs; establishing sustainable community indicators and their integration into comprehensive plans and governance; identifying creative solutions directing communities towards energy-independence; preparing communities for the challenges potentially brought upon by the Climate Change phenomenon; and advancing the integration of transit and non-motorized travel solutions into community land use planning. She has worked throughout the United States for both the public and private sectors.

Phil Olbrechts is a member (similar to partner) and elected member of the board of directors of Ogden, Murphy, Wallace, LLC. Phil focuses his practice on land use law and currently represents seven municipalities as either City Attorney or Hearing Examiner. He has taught over a dozen credits of land use law at the University of Washington, has taught numerous land use continuing legal education courses and has made over 200 land use presentations to elected and appointed officials throughout Washington State. Phil has served on the Seattle Planning Commission and in the past served as the Planning Director for two municipalities.

Arthur Sullivan is the Program Manager of ARCH (A Regional Coalition for Housing). ARCH is a coalition of 16 public jurisdictions located in East King County. Its purpose is to facilitate efforts of public jurisdictions to create a full range of housing, with an emphasis on affordable housing. In 2004 ARCH was the winner of the inaugural Ash Institute / Fannie Mae Foundation Innovations in American Government Award in Affordable Housing. Previously Arthur was a Senior Manager at BRIDGE Housing and planner for Environmental Impact Planning. He holds a B.A. in Planning from the University of Washington, and a Master of Planning from UC, Berkeley.

*The Articles appearing in the "Planning Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.