Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
The drivers that make extreme heat so severe were all in play over Independence Day weekend: More people live in areas exposed to extreme heat, existing infrastructure is vulnerable to extreme heat, and cooling is expensive and not universally accessible.
Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
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Resilience finance in the municipal market has generally occurred in two different, yet equally inept ways. On one side are transactions that are too narrow: bespoke, highly-engineered deals that cannot scale. On the other side are transactions that are too wide: general obligation bond issuances, where resilience outcomes become difficult to track or measure. Together, this means fewer bankable projects, higher costs of capital, and a market that can't fund resilience at scale. But a middle route can fund adaptation at the pace climate risk demands.
The first structural problem is bespoke resilience finance transactions. The power of the municipal bond market, and securities in general, is that they can scale. These are financial instruments that can package millions, if not billions, of dollars into programs and projects. Yet, as the resilience discussion has evolved, many public finance solutions forgo scalability from the get-go by engaging in unique transaction-types.
Environmental Impact Bonds (EIBs), blended capital structures, and a variety of special purpose vehicles are a few examples of resilience finance models that are difficult to scale. While the structures vary, these more bespoke options redistribute risk and reward among participants.
Many of these projects are valuable concepts, but they’re not scalable across thousands of local governments and do not take advantage of what the muni market can really deliver when it comes to resilience needs. Instead, they tend to cost more for taxpayers due to these complexities.
If the first problem is excessive customization, the second problem is excessive generalization, where broad “green” designations are attached to traditional general obligation bond issuances.
In the mid-2010s, the municipal bond market saw a burst in “green” bond issuance.
Because the cost and bespoke nature of that transaction made replicability difficult, states and large issuers began labeling portions of massive bond offerings as “green” or “climate” bonds—applying a green label to what they were already doing. As a result, many of these issuances were simply conventional general obligation (GO) bonds—backed by the full faith and credit of a municipal or state government—that now carried a green designation. In most cases, the bonds did fund verified “green” projects, but because of the funding mechanism, the same bonds could also fund ineligible projects.
Municipal finance already has mature systems for evaluating liabilities, issuing debt, managing reserves, building capital improvement plans, and matching repayment sources to public investments. These systems have financed generations of roads, schools, water systems, and economic development. Rather than replacing them, resilience finance should begin by working within them.
The real opportunity is finding better ways to value resilience within the debt instruments we already have. Here is how this could look with typical muni bond structures:
Each structure uses an existing municipal finance tool but broadens the definition of what constitutes a financeable public asset. Instead of paying solely for concrete, pipes, or roads, these transactions finance measurable reductions in future fiscal risk.
Once governments can consistently demonstrate that connection, resilience no longer requires bespoke financing structures; it becomes another investable category within the municipal market.
Read the full article here.
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30x increase
Between 1985 and 2024, acreage burned by high-severity forest fires in California increased by 30x. A UCLA study found that this is likely due to the suppression of frequent, lower-grade fires that removed forest floor fuels without killing trees.
Source: UCLA.
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The Epicenter helps decision makers understand climate risks and discover viable resilience solutions. The Epicenter is an affiliated publication of The Resiliency Company, a 501(c)3 nonprofit dedicated to inspiring and empowering humanity to adapt to the accelerating challenges of the next 100+ years.
Bespoke deals are too complex to scale. Broad “green” designations are too vague to measure. A middle route can fund adaptation at the pace climate risk demands.
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