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Billions for Adaptation in Biden's Budget, Stockholm Climate Bond Woos Folksam, and More
The President proposes financing to harden US against climate shocks, though most provisions are unlikely to become law
Louie Woodall
March 18, 2024
AI-generated via DALL-E
In Biden’s budget proposal, financing to protect against floods, droughts, fires, and extreme heat, the Climate Change Committee knocks the UK government’s latest adaptation plan, Stockholm’s adaptation bond finds an enthusiastic investor, Bloomberg Philanthropies advances its work on sustainable cities, and a ‘Resilience Wrapper’ is Innovation of the Week.
Last week, Climate Proof explored the Global Adaptation Resilience and Investment working group’s new investment principles framework. Check out the article HERE and become a premium subscriber to receive features like this every Thursday.
Biden’s Climate Adaptation Budget
“I’m taking the most significant action ever on climate in the history of the world,” said President Joe Biden at his State of the Union address earlier this month.
He’s not wrong. Biden has done more to catalyze decarbonization in the US than all the previous occupants of the White House, most significantly through the flagship Inflation Reduction Act. The President has also issued a slew of executive orders mandating that climate risks be considered up and down the federal government, while his Cabinet has been hard at work introducing rules and policies designed to harden the US against climate shocks.
Next year, the Administration wants to do even more. The President’s 2025 budget proposal, released last Monday, earmarks billions more for the climate fight, including for adaptation and resilience (A&R).
Here are the top-line climate A&R spending proposals:
US$7.5bn to stimulate the development of climate-resilient affordable housing.
US$4.1bn for the Low Income Home Energy Assistance Program (LIHEAP), which provides home energy and weatherization assistance to households, plus the option for states to use some LIHEAP funds to offer water bill assistance to poor families.
US$1.5bn for the Environment Protection Agency to roll out programs, policies, and regulation that tackle air pollution and radiation exposure.
US$1.6bn for the Department of Energy to support infrastructure projects, including finance for the weatherization and retrofit of low-income homes and to build a secure, reliable, and resilient energy grid.
US$23bn to address flood, wildfire, drought, and other extreme weather risks, including funding for wildland firefighters, land conservation, flood hazard mapping, and investments to mitigate the impacts of extreme heat.
Funding to expand the American Climate Corps, with the goal of training and supporting 50,000 workers in clean energy and climate resilience annually by 2031.
A US$500mn contribution to the Green Climate Fund, a UN-backed multilateral fund that invests 50% of its resources in adaptation, as part of the Administration’s multiyear US$3bn contribution goal.
There’s also US$3bn to support the President’s Emergency Plan for Adaptation and Resilience (PREPARE), a bundle of policies to support developing countries on the frontlines of climate change. Financing earmarked for PREPARE goes towards deepening understanding of climate risks and adaptation solutions, “mainstreaming” adaptation in development finance, and mobilizing public and private capital in support of adaptation goals. The last Innovation of the Week, Floodbase, was supported by a USAID grant bankrolled by PREPARE.
There’s also money for the Department of the Interior to dole out to tribal nations and indigenous communities working to harden themselves against climate shocks.
The President’s proposal kicks off a complex political dance between Congress and the White House that will unfold over the coming months. Few, if any, of the climate tax and spending ideas are likely to be adopted by the Republican-controlled House this year, given red state lawmakers’ hostility toward such initiatives.
Still, the proposal offers a blueprint for how a re-elected Biden, backed by a Democratic Congress, would seek to govern in a second term and advance his climate priorities.
UK Adaptation Plan Falls Flat
Across the Pond, the UK government is under fire for a National Adaptation Plan (NAP) that “falls far short of what is required”, according to the country’s independent Climate Change Committee (CCC).
In a report, the CCC says the plan advances only 40% of the actions needed to tackle urgent climate risks. For example, the CCC claims the adaptation plan “does not tackle effectively the barriers to investment” for A&R and that a “limited understanding” on A&R spending prevails in both the private and public sectors.
UK law compels the government to produce an NAP every five years. The latest edition came out in July 2023, and was supposed to respond to climate risks outlined by the Climate Change Risk Assessment published in 2022. This assessment highlighted 61 climate risks and opportunities to the UK, of which around half were labeled “urgent.”
Among the priority actions demanded of the government going forward, the CCC cites the implementation of “effective resilience mandates” for infrastructure to ensure energy, water, and rail can deal with climate shocks.
The Committee also urged the government to ensure it is “fully informed on the benefits of adaptation today” before the next spending review, which is likely to take place in 2025. That way, public spending on adaptation can be rightsized to the country’s needs.
“Increased public funding for adaptation should be a cornerstone of an effective adaptation response — as well as helping to remove barriers to private investment,” the CCC report says.
Stockholm Adaptation Bond Woos Insurance Giant
Adaptation investment begins at home. That’s the message sent by Swedish insurer Folksam, which last week publicized a SEK 2.5bn (€221mn) investment in a new five-year adaptation bond issued by the City of Stockholm.
At least half of the bond’s proceeds will finance upgrades to infrastructure projects throughout the city, specifically those related to water — an area of growing concern as the ‘Venice of Scandinavia’ experiences more frequent and intense downpours. Some of the money will go toward making the city’s sewage treatment facilities more climate resilient, and some to enhance its main pipeline network, among other things.
Last August, heavy rains brought by Storm Hans swamped Sweden and other parts of Scandinavia, saddling the country’s five largest insurers with SEK 1bn of costs. Folksam itself received claims from over 1,500 customers in the immediate aftermath. The bond investment may help shield the company from soaring payouts in the wake of future storms. Sweden as a whole needs to invest some SEK 600bn — or 10% of GDP — in water infrastructure going forward, according to Swedish Water.
The deal is well-suited to Folksam. For one, it could lower the company’s exposure to flood-related claims going forward. For another, the investment helps burnish its sustainability credentials. The deal also demonstrates the attractiveness of adaptation to holders of so-called “patient capital”, like insurers, which are more willing than most to take long-term bets with their investments.
Urban Resilience gets the Bloomberg Treatment
Bloomberg Philanthropies is doubling down on sustainable cities. The multibillion dollar network of charitable organizations set up by the eponymous fintech mogul is spending US$200mn to “proactively build low-carbon, resilient, and economically thriving communities” in 25 US metropolises, including Atlanta, Nashville, Memphis, and Jackson.
“Tackling climate change and building stronger and more equitable cities go hand in hand. Mayors have bold ideas for how to take on both challenges at once, and we’re looking forward to expanding our support for them.
Each city will be assigned a Bloomberg Philanthropies-funded “innovation team” of experts to help drive progress on sustainability goals and achieve equitable outcomes. Cities will also get tailored policy and technical assistance to “mobilize public, private, and philanthropic investments” that advance their climate objectives. The program has already kicked into gear, with efforts underway to hire innovation teams in each locale.
The intention is for Bloomberg’s money and expertise to “pursue transformative solutions in the buildings and transportation sectors”, examples of which include developing affordable energy-efficient housing, increasing access to clean energy, investing in electric vehicles, and climate-proofing infrastructure.
💡Innovation of the Week💡
How to buffer developing world businesses from climate shocks? It’s a question vexing both companies and the financial organizations that lend to them. Creditors’ concerns are that loans to climate-vulnerable firms will not be repaid in the wake of climate disasters, causing losses and eroding their capital. This fear is particularly acute among state-backed development finance entities, which have limited resources and face a high degree of scrutiny over their spending.
Financial solutions company WTW thinks it has a solution. Its new “Resilience Wrapper”, announced today, offers parametric insurance coverage for direct loans to private enterprises hit by climate shocks. In the wake of a triggering event — like a cyclone, flood, or drought — the insurance will payout, allowing borrowers to continue repaying their debts and protecting creditors against losses.
WTW is piloting its Resilience Wrapper with the US Development Finance Corporation (DFC), which partners with the private sector to finance solutions to developing world problems. Financial support for the initiative is being provided by USAID, America’s international development agency.
“A disaster can bankrupt a business overnight. Innovations like the WTW Resilience Wrapper make communities better equipped to withstand disaster by supporting the local companies they depend on, while incentivising lenders to work in places they might otherwise consider too risky for investment,” said Gillian Caldwell, USAID Chief Climate Officer.