Climate Risk (non-)Disclosure of the Week: 5/4-5/8

For this week’s Preliminary Official Statement, we’re looking in risQ’s own back yard for notable differences between the risks disclosed and the risk revealed versus our analysis.

This week’s distinction goes to:

        The Town of Salisbury, MA

the Preliminary OS for which can be found here.

As always, it doesn’t take a lot of digging to find a plethora of climate events, with associated commentary and implications. Nor’easters such as March 2018’s version are common enough to turn Salisbury into the state’s poster child for climate risk commentary and speculation. Our analysis places Salisbury in the worst 2% of towns and cities nationally in terms of overall climate risk on residential property value, and in the worst 3% nationally in terms of GDP impairment risk:

As our readers will be familiar with by now, we take a look through the Preliminary Official Statement for evidence of a plan from the issuer to mitigate clear and present risks to property, or at least some initial disclosure that the risks might exist. Across the 102 pages document, “flood”, “climate”, “erosion”, “sea” or similar indicators. The term “natural disasters” is thankfully referenced in the context of having a commercial insurance policy. However, the probability of premium increases on those policies is not mentioned as a risk, and the details of the policy with respect to residual liabilities or limits and how these might be stretched going forward are absent. This is not to say that the town has not tacitly recognized flooding risk in other channels. For example, the town is Class 8 in the NFIP’s Community Rating System, a program the town itself registers for. At the same time, the 1-10 scoring system has a 1 as the highest level of flood risk mitigation and action. A 10 comes from simply registering a jurisdiction at all, and a 9 is akin to writing your name in at the top of an exam.

It is hard to imagine in the lifetime of the impending series of securities that climate events of increasing cadence or significance won’t continue to place Salisbury in harms way, and increasingly so. It is equally hard to imagine that such outcomes won’t flow in some way, shape or form to the town’s balance sheet.

We’re looking forward to working with issuers, bond insurers, sell-side, and buy-side market participants in disclosure, discussion and action on climate adaptation.

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