El Niño forecast raises focus on climate resilience financing
Ravi S. Bhalla says capital markets need clearer structures to fund flood, grid, water and wildfire defenses as El Niño risks rise.
By Sofia Marchetti · World Affairs Correspondent
3 min read
Federal forecasters see a strong El Niño as likely this winter, and Ravi S. Bhalla says investors are underprepared for the financial risks that could follow. Bhalla, the head of climate finance at Dundon Advisers and former mayor of Hoboken, N.J., argues that resilience infrastructure is becoming its own investment category, even as capital markets have been slow to build around it.
Bhalla wrote in Fortune that forecasters put the chance of a strong El Niño at roughly two in three and the chance of an event matching or topping the 2015 record at better than one in three. He said such an event could increase pressure on cities, utilities, insurers and investors by concentrating floods, droughts, fires and grid stress into the same period.
Bhalla pointed to his eight years as Hoboken’s mayor as evidence that spending on climate defenses can protect public finances. He said cities that manage physical climate risk can help preserve property values, tax revenue, business operations and credit quality, while cities that fail to address those risks can see those areas weaken together.
In Hoboken, Bhalla said the city built ResilienCity Park on a former chemical plant site as part of broader work tied to Rebuild by Design after Superstorm Sandy. The park includes underground stormwater storage that can hold about 2 million gallons during a major storm, according to Bhalla.
Bhalla said Hoboken’s resilience projects helped reduce flooding, speed recovery after storms and limit disruptions for residents and businesses. He also said S&P Global Ratings repeatedly affirmed the city’s AA+ credit rating during his tenure, citing its resilience investments and long-term approach to environmental risk.
The financing need is larger than public budgets alone can cover, according to Bhalla. He cited Boston Consulting Group projections that annual demand for resilience-focused investment could reach $3 trillion by 2030, and that failing to act could cost up to 15 times more.
Bhalla also cited a Boston Consulting Group and Rockefeller Foundation survey finding that more than four in ten institutional investors in major markets now identify adaptation and resilience as an area where they want exposure. He said rating agencies, including Moody’s, are adding physical climate risk to their credit analysis.
Bhalla said investors should treat resilience as a set of physical sectors rather than a broad label. He listed flood and stormwater systems, grid and energy hardening, water supply and treatment, wildfire defense and forest management, and coastal and transportation adaptation as distinct areas with different engineering, regulatory and financing needs.
The main financing challenge, Bhalla said, is that resilience projects often pay off through losses avoided rather than direct revenue such as tolls or power sales. Those benefits may appear across city budgets, insurance books, businesses and property owners at the same time, making projects harder for institutional investors to evaluate.
Bhalla said structures such as blended capital arrangements, resilience-linked municipal debt, environmental impact bonds and public-private partnerships are moving from theory into use. He argued that the missing piece is a larger pipeline of projects that are engineered, permitted and structured with revenue projections, contracts and scale sufficient for pension funds and insurers to underwrite.
Bhalla said the case for resilience is becoming clearer as insurers and rating agencies price physical risk more aggressively. A strong El Niño, he argued, would expose the difference between places that have already invested in defenses and those that have not.
This story draws on original reporting from Fortune.