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Climate Risk (non-)Disclosure of the Week: 10/5 to 10/9

By October 22, 2020 No Comments

In the last week, the State of Louisiana as well as the Iberia Parish School District published Official Statements for their respective bonds. Given the active hurricane season, notably Laura and the impending landfall of Delta in approximately the same area of the state (as of now) we thought a closer look was warranted. We’ll focus on the Parishwide School District of the Parish of Iberia, the OS for which can be found here, but draw from the the OS produced by the state.

The Parish of Iberia is coastal, which means its high risk overall and across a range of individual perils. Focusing on Property VaR, across school districts nationally it is 99th percentile overall, and is at least 96th percentile for each of hurricane flood, hurricane storm surge, hurricane wind and inland flood. Exactly half of the absolute risk is from inland flooding, which exemplifies just how high the overall risk is given the exposure to hurricanes. The tail risk metrics are also extreme. For example, a 100 year inland flood has a 26% Property VaR. The storm surge from “just” a Category 2 Hurricane has a 29% Property VaR, the average expected precipitation from any hurricane has a 17% Property VaR. Keep in mind, the climate change conditioned probability of a hurricane impacting the Iberia Parish between now and 2033 is 25%, and for Category 2 or worse it is still 16%. In a year like 2020, even these numbers seem conservative.

Looking at the OS, the sum total of climate risk discussion is on page 7: “The Issuer is located near the Gulf Coast of Louisiana in an area that is prone to hurricanes and other tropical events. In the last ten years, Hurricanes Gustav, Ike and Isaac, along with less intense tropical storms and tropical depressions, have impacted parts of the Louisiana coast. In addition, Hurricanes Katrina and Rita cause significant damage to various parts of Louisiana in 2005.” Perhaps events like Tropical Storm Barry in 2019 could have merited a mention as well given the 30,000 Iberia residents left without power and the evacuation of the Iberia Parish Medical Center, as a result? No mention of “flood”, which is a big gap considering the inland flood risk we know exists. No mention of “climate”, as in change, or anything else beyond the above. It looks like the language above is simply a redacted version of what the State of Louisiana used in the Environmental Risks section of its own OS on page P-I30 (found here). The state has more detail on Hurricane Laura, which Iberia doesn’t mention. Admittedly, Iberia feel just outside FEMA’s Disaster Declaration area for Laura (see FEMA-4559-DR) which is good news as the damage wasn’t at the height of severity, but bad news in that the damage that was done will not receive associated recovery support. It should also be noted that the state’s OS also fails to discuss inland flood risk, which represents 59% of the overall Property VaR for Louisiana as a whole. If the state can’t get this right with all the resources at their disposal, what chance does a smaller issuer like Iberia Parish have?

As an ESG aside, it should also be noted for both the Iberia Parish and State of Louisiana OS’s, there is a noted economic reliance on oil and gas and the petrochemical industry, but no discussion or reference to potential carbon transition risk. Focusing on the Iberia case, the OS does document that five of the ten biggest property tax payers and two of the top three employers are oil and gas centric. Our own data, found in the workplace demographics tab of the risQ UI, indicates 11% of the workforce within the parish is in that industry, with an absolute job count in that industry in the 99th percentile nationally. By 2033, the economic risk of carbon legislation and/or transition are certainly worth a mention.

Not surprisingly, given all the above, the other risk indicators and implications are in full effect. The climate risk, correcting for other factors, places Iberia’s population gain/loss in the worst 5% of counties/parishes nationally. NFIP claims/capita/per year for the Iberia Parish are at the 98th percentile nationally at $29,931. Problematically, only 17% of the flood risk in the parish is insured and much of the flood risk is not accounted for in FEMA maps with over 2.5 times the flood risk not accounted for versus what is captured. No mention of Iberia in the NFIP’s Community Rating Survey which means no corresponding insurance discounts for the residents and no NFIP-vetted efforts focused on flood mitigation. Remarkably, there is evidence of coastal flood risk mitigation to be found for the Parish, but the issuer fails to present this. A range of mitigation projects for Iberia can be found on https://coastal.la.gov/, and specifically here for Iberia. That said, the projects that will substantially move the needle are still in planning or concept stages with timelines that won’t keep up with the risks the parish is going to be facing.

As a general premise, smaller issuers like school districts and/or the counties and parishes with less resources they tie to are always going to have a challenge keeping up with climate risks and the quantification that is now possible. The onus is really on the states and the larger centers to provide resources that smaller issuers can draw from. Larger issuers and jurisdictions need to lead and help the smaller issuers that are within their jurisdiction to follow when it comes to climate risk disclosure. That said, smaller issuers need to use the resources that are made readily available to them.

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