By Michael G. McGuinness
Ten years ago, Superstorm Sandy slammed into New Jersey, killing 38 people, devastating coastal areas, inflicting billions of dollars in damage and causing power outages for millions of residents and businesses for weeks. For many, it was a turning point that changed the way they invested and did business. Given today’s accelerating pace of life-altering disruptions — the pandemic, inflation, Russia’s invasion of Ukraine, extreme weather events — I believe New Jerseyans are ready to modify their behavior to reduce their risk and financial exposure to the adverse impacts from climate change.
On Sept. 22, I attended a virtual roundtable, “State of Resilience: Reducing Economic Risk through State Climate Policy,” hosted by state Department of Environmental Protection Commissioner Shawn LaTourette. It featured a discussion with industry leaders, government officials and academic experts on the economic risks and impacts associated with climate change and the actions to address them (View on YouTube). This article captures my takeaways.
State Treasurer Elizabeth Muoio highlighted several ways the Phil Murphy administration has invested hundreds of millions of dollars over the last five years to combat climate change and prepare for its impact. This includes education, training, transitioning for a new workforce (the Wind Institute for Innovation and Training, the Green Jobs Council) and developing climate change education standards. The administration is also investing heavily to improve our infrastructure, including the offshore wind port and electric vehicle charging stations, which will support a 100 percent electric vehicle fleet by 2025. Money is also being invested in shore protection, flood control, beach replenishment and the Blue Acres program while the Board of Public Utilities is implementing programs for reducing carbon emissions and improving small business energy efficiency.
Land use in New Jersey is controlled locally, so much of the focus was on how municipalities should approach this new reality. Joel Sonkin, climate change specialist leader at Deloitte, offered the following advice. First, municipalities need to have a clear and shared understanding of the breadth of risk and the vulnerability of their residents. Then, they need to prioritize their risk exposure to the likelihood and frequency of an adverse event occurring. They must identify critical investments — power, water, access roads, hospitals, food stores — the town can’t afford to lose for an extended period. With limited resources, towns will need to develop a phased plan for immediate and deferred action. Mr. Sonkin asserted that municipalities need to institutionalize risk management into all governance policies, such as land use, building codes, emergency response plans and permit decisions, so that every project becomes a climate change mitigation project. Thoughtful consideration should also be given to pooling resources with other property owners and public partnerships to manage risk. He also cited the need to perform needs assessments and anticipate federal grants.
Robert Azrin, senior research analyst at Breckinridge Capital Advisors, provided his perspective as a municipal bond investor for a fixed-income investment firm. His primary role is to gauge if the tax base and economy will remain healthy in the face of climate change, and that local governments continue to repay their obligations. He advised local officials to take several steps to improve their odds for success. First, do a comprehensive vulnerability assessment of all properties that fund the municipal tax base. Then, on the mitigation side, do a community-wide greenhouse gas emissions inventory. Next, they should develop plans with actionable and realistic goals, with potential funding sources, timelines and a structure of accountability. He also stressed the benefits, especially to smaller towns, from collective knowledge, partnerships and regional planning such as the Southeast Florida Regional Climate Change Compact). Engagement with all stakeholders — the marginalized, nonprofits and business sector — will increase buy-in, produce better solutions and improve the likelihood plans will be executed. Most importantly, he urged a climate-smart approach to capital planning that systematically factors in reducing greenhouse gas emissions and increasing resilience to climate risk.
Laurie Schoeman, director of climate and sustainability for Enterprise Community Partners, discussed how communities can sustainably invest their capital in ways that increase our housing supply while meeting the state’s affordable housing goal. She stated that we need to change the way we design, operate, and finance community infrastructure and housing. “There is no such thing as retreat from the coastline for a low-income family, who cannot find a house to live in,” Schoeman said. “We need to get busy creating affordable housing in safer (upland) areas and fortifying existing housing stock even in the floodplain.”
One of the material impacts of climate change is the rising cost of insurance. Schoeman called on the insurance commissioner to help finance insurance risk reduction and incentivize the offering of products that encourage investment in risk reduction and adaptation. She further stated that if we continue to invest in today’s infrastructure standards, it “will lead to the degradation of assets, an increase in insurance rates and a gap that we won’t be able to fill.”
Marcus Sibley, chair of New Jersey Progressive Equitable Energy Coalition, stressed the vital role of communications. First, by proactively submitting plans to state and federal officials to secure financing for outdated infrastructure. Secondly, with the stakeholders who live in the community. He stated that “unfortunately, far too often, we have people in short-term positions doing the long-term planning …so if the long-term plan is not put in place, the only thing you are doing is creating something that has to be redone every time there is a new (elected) representative, and the community has to start from scratch every few years, which is a terrible model.”
Tamara Linde, executive vice president and general counsel for PSE&G, and Jane Cohen, executive director of the Governor’s Office of Climate Action & Green Economy, made additional comments. Linde stressed the need to collaborate and plan for the future and spoke about how PSE&G ramped up its proactive stance after Sandy by raising their substations and grid modernization efforts. Cohen alluded that inaction is misleading since we are not in a static mode since the adverse impacts of climate change are accelerating rapidly.
With a sizeable state surplus and the influx of new federal funding sources, we have an excellent opportunity to take a new approach on how best to adapt, reduce our risks and mitigate the impacts of climate change. The status quo has got to go.
Michael McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.