Newly forecasted tornado patterns are alarming too, with more outbursts likely stretching beyond the Midwest “alley” and much further east.
The NHI also anticipates where hazards will intersect. Sometimes, a disaster ebbs because of an equally disruptive event. The index shows that Louisiana, for instance, will likely suffer fewer wildfires but ties that to expected more frequent hurricanes, which lead to more flooding.
Tying Natural Hazard Vulnerabilities to Investable Assets
Columbia Climate School’s new data provide essential inputs for planning disaster responses and anticipating hazards’ long-range effects on people, the environment and economies. We believe it also can help investors see better around corners—which is particularly useful as climate change grows more unpredictable and hyperphysical.
With this in mind, we are incorporating key components of NHI 3.0 into our proprietary Physical Hazard Investment Risk (PHIR) tool, which overlays a financial element for each NHI hazard across more than 3,100 US counties. The expanded research now helps PHIR factor future local risk exposures to wildfires, hurricanes, tornadoes and rising sea levels in the US—considered the top four natural threats through 2050.
As an investment tool, the PHIR can assess hazard-risk exposure across municipal bonds and residential mortgage-backed securities. After all, homes, schools, hospitals, power plants and airports are all location specific, which means issuers and lenders are exposed to distinctly local trends in climate change.
Active equity investing can also benefit from the PHIR’s expanded data. Companies of all stripes can be just as exposed to local hazards—if not now, then in the coming decades. A company’s degree of risk could be exponential, since many operate in multiple locations that face elevated risk.
Wildfire projections offer a prime example of how a single company can reveal several risk profiles. A large utility with facilities in Minnesota and South Dakota may be situated in low-risk areas currently. But the wildfire outlook changes dramatically by midcentury. This region shows an increase in wildfire exposure of 88% (Display), a material factor that we believe the company—and those in similar situations—should address. In this case, we engaged the company’s leadership about applying lessons learned from its properties in wildfire-prone Colorado to their Midwest operations.
