When a major credit rating agency announced a few years ago that it would start incorporating climate risk into its ratings of municipal bonds, Yale SOM’s Anya Nakhmurina and her co-author Shirley Lu decided it would be interesting to know how cities across the United States were adapting to the consequences of climate change.
But, despite the enormity of the problem—the National Oceanic and Atmospheric Administration says billion-dollar inland flood events have risen sharply over the last four decades—no one seemed to be monitoring cities’ preparation levels.
“It was impossible to get aggregated, archival data,” Nakhmurina says. “We thought, ‘Both of us are experts in financial reporting, and we really care about this issue, so why don’t we just leverage our expertise to compose the data ourselves?’”
The results—based on financial disclosures data for more than 400 cities, which took two years to collect—offer a fascinating glimpse into the country’s climate preparedness, or lack thereof. The study looks specifically at flood risk, in part because, as Nakhmurina explains, humanity has “centuries of innovation” to draw from in dealing with excess water as compared to say, managing exposure to extreme heat.
The most startling finding in the paper is that, while high-risk cities in general have higher adaptation than low-risk cities, more than half of high-risk cities have below-average adaptation levels. “That really shocked us,” Nakhmurina says. Perhaps also surprising: the factors correlated with low adaptation levels include budget constraints and shorter-term planning, but not any particular political leaning.
One reason systematic data on adaptation at the city level didn’t previously exist, Nakhmurina says, is that it must be collected individually from each city. She and Lu, who teaches at Harvard Business School, set out to fill that void, collecting by hand nearly 9,000 financial disclosures—budgets, annual comprehensive financial reports, and bond prospectuses—from 431 U.S. cities spanning seven years (2013-2020). They next created a dictionary of terms associated with flood adaptation measures, both “hard” (building new or upgrading existing infrastructure) and “soft” (using the natural environment). Ultimately, their lexicon contained 177 keywords, ranging from “beach restoration” and “bulkhead” to “wet pond” and “wind mitigation.”
They then analyzed more than 3,000 observations for cities that had both budgets and annual reports, tallying the number of sentences using the terms from their dictionary, as well as their use in the bond prospectuses they compiled. Nakhmurina and Lu found that the number of sentences closely correlated with the number of adaptation activities a city had undertaken, and they validated their findings in several ways, including by checking cities’ participation in a voluntary system through which the Federal Emergency Management Agency offers flood insurance discounts for higher flood preparedness.
Given all the research we have about drastic differences in climate change views between Democrats and Republicans, we were very surprised to find that differences in beliefs don’t map into differences in action.
Based on the data, the researchers explored three factors that might explain the adaptation gaps, drawing on the Intergovernmental Panel on Climate Change Sixth Assessment Report: political affiliation, financial constraints, and planning horizons. Despite the politicization of climate change in the United States, they did not find any correlation between Republican-led cities and lower levels of preparedness. Instead, adaptation gaps are associated with more quantitative concerns: cities with less money and shorter planning horizons (one year versus five years) are 7% and 4% more likely, respectively, to have a gap between their adaptation efforts and their risk of flooding.
“Given all the research we have about drastic differences in climate change views between Democrats and Republicans, we were very surprised to find that differences in beliefs don’t map into differences in action,” Nakhmurina says. In contrast, “long-term planning actually matters a lot.” Experience also seems to matter: The data revealed that high-risk cities increased their adaptation by 19% following major hurricanes.
The paper is unique in that it provides systematic panel data for so many cities over several years and that it is based on cities’ financial documents, rather than their stated plans and goals.
“A plan can change,” Nakhmurina says. “But if something is in the budget, that means it is less likely to change. If it’s in an annual report, that means it actually happened.”
Nakhmurina is quick to point out that the study is not exhaustive, nor does it establish causal links.
“We provide a bunch of associations,” she explains. “The next step would be to try to understand what interventions perhaps might narrow the gaps. That would be amazing to learn.”