“The National Risk Index is a free tool that allows anyone to take a deeper look at local hazards, and can help inform risk based decision making, so that people can be as prepared as possible.” Statement—FEMA Administrator Deanne Criswell, August 16, 2021

On-line and at no cost, a geographic-specific report is available by US county and “census track” for most any US address by simply spending a few moments on a laptop. The dataset summarizes 18 weather-related and other physical risks analyzed and created by the Federal Emergency Management Agency (FEMA).

FEMA’s effort is complementary to risQ’s products and services that map climate risk to specific municipal CUSIPS and incorporates municipal issuers’ catchment areas utilizing 100 meter grids for granularity and accuracy. MMA is an advisory partner to risQ.

In a statement dated August 16, 2021, FEMA Administrator Deanne Criswell observed: “It is important for people to educate themselves about the severe weather events that can pose a serious threat to their communities.”

The same statement stresses that “climate change is a top priority for the Biden-Harris administration and FEMA,” and that “the Index is specifically designed to help enable communities to develop new preventive strategies, and emergency responses, by helping them to increase resilience and adaptation.”

This tool is timely given recent municipal market observations by investors wanting more information regarding the potential climate change risk to their securities. A recent Brooking Institution study, as reported in a MarketWatch opinion piece written by a former Fidelity Investments president, Robert C. Pozen, stated that for 590 US counties with a population greater than 100,000, only 10.5% of revenue bond official statements and 3.8% of general obligation bond offerings mentioned “climate change.”

Further, Breckinridge Capital Advisors, a Boston-based asset manager, writes in its 2021 ESG Engagement Report that “climate change is a material risk and a risk multiplier for municipal bond issuers, in our view. Yet the information about this material risk that is made available to investors is often inadequate.”

Of course, municipal bond issuers and their professionals must determine in their respective judgements the “materiality” of the FEMA site data and whether the information meets other legal standards to be included in offering document disclosure.

Note both the Government Finance Officers Association (GFOA) and the California Debt Investment Advisory Commission (CDIAC) have published best practices as to climate risk disclosure for municipal issuers.

With the FEMA site, investors have a useful, easily accessible source of information to better understand weather-related and other physical risks of municipal credits.

FEMA emphasizes that its goal is to assist US communities by “providing standardized risk data and an overview of multiple risk factors” by way of an “interactive mapping and analysis tool” so as “to prepare for natural hazards.”

To that end, the FEMA process produces a “baseline relative risk measurement” with respect to 18 natural hazards classifying a community “in relation to all other communities for a specific Risk Index component.” The report also includes projected annual loss values and a score for “community resilience.” Domain expertise and other data has been provided by 71 organizations including multiple universities, federal and state governmental agencies, and private sector companies.

The analysis is easy to access by way of FEMA National Risk Index. The site includes a search process for an individual address. For example, below is the county-level report for my NYC address.

The FEMA site states that its National Risk Index is “intended to inform risk-based decision making while increasing risk awareness” emphasizing it is one source of information to be used in conjunction with other resources and knowledge.

Given the decentralized nature of the US municipal market, the FEMA data base appears especially useful. In any given year, away from the a few hundred larger bond issuers that is the substantial majority of market sales, 25% of total par amount of bonds represents the activity of thousands of smaller issuers.

In addition to this recent roll-out of the Risk Index, FEMA announced this past week a revised pricing schedule for its flood insurance that now factors in risk related to climate change. The Washington Post reports that beginning “next April, most current policyholders will see their premiums go up and continue to rise by 18 percent per year for the next 20 years.”Credit and risk analysis are a data driven exercise. The FEMA National Risk Index is a noteworthy contribution to that process that is certain to evolve further as concern over climate change consequences continue to increase.