Chronic climate perils and stranded communities

When it comes to climate disasters, event-driven, or acute perils, like hurricanes, wildfires, and floods, tend to make headlines and dominate the collective imagination and popular discourse. Because they are perceived as one-off events "that pass" and are often insured, or de facto insured by state and/or federal relief and bailout mechanisms, their impact is largely muted.1,2Arguably more impactful and with effects that can be more long-term are the ongoing chronic perils of drought, heat stress and water stress. These hazards can often be essentially uninsurable and could potentially create conditions that make significant parts of the United States unlivable in the near future. For the municipal bond market, first order effects could be vast and drastic; the potential follow-on impacts could include climate migration and displacement on a large scale, with greater impact on communities with fewer socioeconomic resources, as well as political and civil conflict.

This analysis explores two scenarios that occupy different "plausible" ends of the spectrum to get an early sense of the scale and scope of the who and what is at-risk. Even a narrow criteria "best case" scenario suggests that at least 2 million people could be displaced and more than $7 billion in current outstanding municipal debt market principal could be at risk. Meanwhile a "worst case" scenario (projected impact is broadened) is an order of magnitude more severe; at least 60 million people and hundreds of billions in principal are at-risk and that's not even considering potential ripple effects.