Although we went elsewhere for this week’s non-disclosure spotlight, coastal Massachussetts where Nor’easters can wreak havoc in a distinct way than the national headline-garnering wildfire and hurricane occurrences.
An honorable mention for risQ’s climate risk non-disclosure distinction goes to:
The Town of Provincetown, MA
the OS for which can be found here.
This one is a lay-up in terms of overt climate risk for anyone familiar with the area and the town, given its position on the outer tip of Cape Cod. There is plenty of documentation and commentary on flooding events, such as the back-to-back events in 2018. Our analysis places Provincetown in the worst 5% of towns and cities nationally in terms of overall climate risk on property value, and in the worst 2% nationally in terms of GDP impairment risk:
Within the 129 page Official Statement, “flood”, “climate”, “erosion”, “sea”, “adaptation”, “resilience” or any combination thereof do not appear. The term “natural disasters” can be found once in “The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the Town carries commercial insurance”. However, the probability of premium increases on this 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. Such a policy does not represent coverage for the residents, property or businesses that underpin the tax revenue steam for the town.
Provincetown requires extra attention to detail in this regard. Registered historic places have specific exceptions with respect to flood regulations and resilience investment, and close to 60% of such properties across historic Cape Cod are in Provincetown. The town is Class 9 in the NFIP’s Community Rating System, a program the town itself registers for. As a reminder, 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. That said, a 9 does qualify properties in the flood plain for a 5% discount on insurance premiums. However, as of last year, only 35% of eligible property owners across Barnstable County have enrolled.
Another aspect of note for Provincetown is its status as an Opportunity Zone on the basis of its socioeconomic profile within the Massachusetts cohort of jurisdictions. This opens up the ability for investors to realize capital gains relief via investment in local infrastructure projects, for example. For an ESG-focused investor, a climate-adaptation or resilience related project would provide multifaceted E, S and G impacts.
The 2021 maturity of this specific issuance, versus the 2018 series with longer maturities, obviates the need to look at future climate change impacts on risk in this case, but then requires a quick commentary on COVID-19. More than 50% of the town’s jobs are in accommodation, food, retail and entertainment and with key tourist attractions and events now cancelled for 2020, the impacts on the local economy and tax revenues will be substantial.
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.