Bailout of California's Insurer-of-Last-Resort, Climate Risk Index Spotlights Rich Nations, EU Climate Tech for Resilience, and More

Finance:

• California’s Wildfire-Struck Insurer-of-Last-Resort gets US$1bn Bailout

• Fed Chair Warns of Climate Threat to Banks, Mortgages

Policy:

• Mass Agency Firings Heighten US Climate Risks

• Rich Nations Among Those Worst Hit by Climate Risks

• SEC Acting Chair Cedes Fight Over Climate Disclosure Rule

Tech:

• EU Should Press Climate Tech Advantage – Report

Research:

• Another round-up of papers and journal articles on all things climate adaptation

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California’s Wildfire-Struck Insurer-of-Last-Resort gets US$1bn Bailout 

California’s backstop insurer has been authorized to collect US$1bn from the state’s private insurers to help pay out claims to those impacted by the Los Angeles wildfires.

In an order signed last Tuesday by California Insurance Commissioner Ricardo Lara, California’s FAIR Plan won approval to raise capital by “assessing” each independent carrier operating in the Golden State and charging them a fee based on their market share. Insurers can pass half of these costs through to customers by increasing their rates. This means the bailout is likely to make private insurance even more expensive in California and across the US.

“[T]he FAIR Plan must pay claims just like any other insurance company. I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks,” said Lara in a press statement.

FAIR Plan’s Highest Wildfire Exposure

The FAIR Plan estimates its total losses from the Palisades and Eaton fires, which raged through vast swathes of LA in January, to be around US$4bn, and says it is likely to pay out US$2.34bn over the next three months alone. However, the insurance plan only had US$510mn of retained earnings as of the end of last year and US$1.2bn in cash-on-hand, all of which will be consumed by policyholder claims. Hence they need for the “assessment”.

As of February 9, the backstop insurer had received almost 4,800 claims related to the two fires. Last year, it said its exposure to the Palisades alone was US$5.89bn. Total insured losses from the LA fires — from private and FAIR plan policies — have been estimated at US$28bn by risk modelers Karen Clark & Company.

Fed Chair Warns of Climate Threat to Banks, Mortgages

It may soon become impossible to obtain mortgages in parts of the US because of escalating climate risks, Federal Reserve Chair Jerome Powell said in testimony before Congress.

“Banks and insurance companies are pulling out of areas, coastal areas … areas where there are a lot of fires, so what that’s going to mean is if you fast-forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage. There won't be ATMs … the banks won’t have branches — that’s a possibility coming up down the road,” Powell said before the Senate Banking Committee last Tuesday.

“It’s not that the banks will stay there and keep making loans in the face of, evidence of, disasters — or that insurance companies will write policies. They can cancel those policies every year. So I think the risk is that they just won’t be there,” he added.

Powell was responding to a question from Democratic Senator Tina Smith of Minnesota during his semi-annual monetary policy testimony to Congress. Smith said the future he envisioned “would be a massive source of instability in our economy overall.”

Powell further argued that the costs of banks’ and insurers’ retreat from climate-vulnerable areas would fall on homeowners, as well as the state and local governments that try to bailout affected communities. “I don’t know that it’s a financial stability issue, but it certainly will have significant economic consequences,” he said.

Powell came under fire earlier in his testimony from Democratic Senator Elizabeth Warren of Massachusetts for overseeing the Fed’s withdrawal from the Network for Greening the Financial System — a group of central banks and supervisors focused on climate risks and sharing climate data.

“You will lose good people, climate catastrophes will continue to mount, and the increasing vulnerability of big banks will threaten our entire economy,” she said, speaking to recent moves by the Fed that appear to align its actions with the Trump administration’s attack on climate issues, Diversity, Equity, and Inclusion, and financial regulation.

In Brief

Tailwind Climate and Climate Resilience for all have published an ‘Adaptation Finance Primer’ that explores the broad range of funding mechanisms for climate adaptation and resilience, including emerging tools like Disaster Risk Finance and Loss & Damage. It emphasizes the need for blended finance — the combination of public, private, and philanthropic capital —to address the severe underfunding of adaptation globally. Case studies highlight practical applications, such as parametric insurance for informal workers in India, impact investments in African adaptation startups, and improved weather data access for Kenyan farmers. (Tailwind Climate)

Investors should incorporate climate risk into financial decision-making to maintain their competitiveness, a new report authored by JP Morgan’s top climate advisor says. ‘Navigating the New Climate Era: Building Intuition for Strategic Decision-Making’ outlines how climate risks such as extreme weather, shifting regulations, and resource scarcity are affecting asset prices and altering investment strategies. It also introduces the concept of “climate intuition” — the ability to anticipate climate-driven financial impacts, through scenario modeling, analysis of insurance market trends, and policy shifts. The report was written by Sarah Kapnick, Global Head of Climate Advisory at the Wall Street bank and former Chief Scientist at the National Oceanic and Atmospheric Administration (NOAA). (JP Morgan)

South Korea's fresh fruit imports surged to a record US$1.45bn in 2024, a 20.1% increase from the previous year, as climate-driven poor harvests strained domestic supply. The Korea Rural Economic Institute (KREI) attributes the trend to worsening weather conditions and declining cultivation areas, prompting the government to lower tariffs to stabilize prices. With imports expected to rise further, the data underscores the growing vulnerability of domestic agriculture to climate impacts. (Korea Times)

Mass Agency Firings Heighten US Climate Risks

The Trump administration began laying off thousands of federal employees from across the US government last week, including many working to address wildfire risks, respond to extreme weather disasters, and strengthen the resilience of American communities.

The firings affected some 3,400 people at the US Forest Service, the agency charged with preventing wildfires by clearing vegetation and conducting controlled burns. Staffers working on agricultural science and technology as part of the US Department of Agriculture were also let go, as were those working on soil erosion and water pollution, which is being made worse by climate change.

President Trump issued an order last Tuesday directing agencies to make “plans for large-scale reductions in force” and telling officials to coordinate with the so-called Department of Government Efficiency (DOGE) — headed by the world’s richest man and close Trump advisor, Elon Musk — on shrinking the federal payroll. On Friday, news reports said thousands of mainly probationary employees, meaning those in their first year on the job, had been stripped of their positions. Reuters put the total figure at over 9,500 on Friday. There were around 220,000 federal workers on probation as of last May.

The latest losses to the federal workforce come on top of the 77,000 or so employees who accepted a buyout offer from the Trump administration, according to White House press secretary Karoline Leavitt. This represents some 4% of the total federal workforce of 2.3 million.

Democratic lawmakers are calling for at least some of the layoffs affecting US climate resilience to be reversed. “The USFS [US Forest Service] is already critically understaffed, and further employee cuts will have real and immediate consequences for Colorado’s economy, rural communities, and wildfire resilience,” wrote Colorado’s two US senators and three of its representatives.  “These public servants not only maintain the health of our headwaters and wildlife habitat but help keep our communities safe by decreasing the risk of wildfire destroying homes and critical infrastructure,” they added.

Rich Nations Among Those Worst Hit by Climate Risks

The US, Italy, Greece, and four other high-income countries were among the top ten nations most affected by climate risks in 2022, according to new data from the nonprofit GermanWatch.

The latest edition of the group’s Climate Risk Index ranked Pakistan as the most impacted country in 2022, based on the combined economic and human losses inflicted by extreme weather events and slow-onset climate risks. Three years ago, Pakistan suffered devastating floods that submerged one-third of the country and affected some 33 million people.

However, an array of rich countries were also battered by climate shocks that year. GermanWatch says this shows that higher-income nations need to ramp up their climate risk management practices. 

Climate Risk Index: Top 10 Most Affected Countries

Italy was the most affected rich country because of the number of lives lost to an “extraordinarily persistent heat wave” that covered southern Europe in the summer of 2022. Spain, Portugal, and Greece also saw fatalities surge that year because of the deadly heat. The US was the seventh-most affected nation overall, largely because of the economic damage wrought by Hurricane Ian — as well as the fallout from Hurricane Nicole and a series of droughts and heat waves that afflicted Arizona, California, Texas, and other states.

However, GermanWatch stressed that lower-income nations are by far the most vulnerable to climate hazards. Over the period 1993-2022, over 765,000 people died from over 9,400 extreme weather events, the majority in the Global South.

The Caribbean’s Dominica was the country most impacted by climate risks over this period because of its vulnerability to tropical cyclones. China, Honduras, and Myanmar took the second, third, and fourth spots in the ranking. Italy, Greece, and Spain were the only three high-income countries in the top 10 for this period.

SEC Acting Chair Cedes Fight Over Climate Disclosure Rule

Mark Uyeda, the Trump-appointed Acting Chair of the US Securities and Exchange Commission (SEC), indicated last Tuesday that the agency would no longer defend in court its own climate risk disclosure rule, which would force public companies to report the potential financial impacts of extreme weather events and adaptation efforts.

Uyeda said an appeals court handling lawsuits against the rule had been asked “not schedule the case for argument” while the Commission determines its next move. He said the climate rule “is deeply flawed” and “could inflict significant harm on the capital markets and our economy”.

Caroline Crensaw, the sole Democratic Commissioner left on the SEC, said in response that investors have for years been calling for “consistent, comparable, and reliable climate risk disclosures” and that enacting the rule is well within the agency’s authority. “The only things that have changed since the Rule was passed have been matters of politics and not substance,” she stated.

Together with fellow Republican Commissioner Hester Peirce, Uyeda voted against the climate rule’s finalization in March 2024, when the agency had a Democratic majority under Chair Gary Gensler. At that time, Gensler said the rule would “provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements.” 

The US Chamber of Commerce and other industry groups sued the SEC over the regulation days after it was finalized, and its implementation has been paused pending a court decision. Uyeda, with a Republican majority on the SEC, could either repeal the rule entirely or stop the SEC from defending it in court, allowing it to be overturned.

In Brief

The US Department of Homeland Security has been ordered to immediately halt all climate-related activities and remove climate change terminology from policies and programs, in line with President Trump’s executive orders. The move could significantly impact the Federal Emergency Management Agency (FEMA), which is already grappling with the spiraling costs of climate-related disasters. (Bloomberg)

Tariffs proposed by the Trump administration could drive up construction costs by 4%-6% over the next year, compounding already rising material prices and threatening housing affordability. The analysis by CoreLogic suggests that the cost of building a new home could increase by up to US$22,000, further squeezing profit margins for builders and limiting the supply of affordable housing. Cost increases would also make it more expensive to rebuild properties devasted by US climate shocks, like the LA wildfires and Hurricane Helene. (CoreLogic)

The Federal Emergency Management Agency (FEMA) has halted enforcement of a flood risk management standard designed to reduce losses to public buildings like schools, hospitals, and housing units. According to a memo seen by the New York Times, FEMA’s Chief Counsel — Adrian Sevier — said the Federal Flood Risk Management Standard, implemented by the agency in 2024, would be paused immediately while the agency considers a policy review. However, by law an in-force regulation cannot be unilaterally stopped by an agency — though it can be repealed following a lengthy process that takes into account public comments and feedback. (New York Times)

EU Should Press Climate Tech Advantage – Report

Europe has twice as many climate tech companies as the US — but startups need more financing if they are to strengthen the EU’s resilience to climate and geopolitical risks, a report released last week at the Munich Security Conference argues.

“Europe has a second chance to build up resilience, and climate tech must play a crucial role,” the report from the World Fund, Kaya Partners, and Worthwhile Capital Partners reads. However, while the EU boasts nearly 30,000 climate tech enterprises versus America’s 14,300, the amount of capital flowing toward them is much less. Venture capital financing in Europe has averaged 0.2% of GDP between 2013-2023, the report says, compared with 0.7% in the US. “Robust European funding” is necessary to beat out competition from China and maintain EU oversight of cutting-edge climate technologies.

The report calls for heightened investment and policy innovation across four sectors critical to EU resilience: energy, food systems and land use, frontier technologies, and raw materials. Among its recommendations, it says electricity grids should be modernized, investments in microgrids increased, adoption of regenerative farming practices and climate-resilient crops technologies ramped up, and the recycling and reuse of key raw materials improved.

“The stakes have never been higher, and the time to act is now. Any further delay will deepen our vulnerabilities as we face an ever-more turbulent global backdrop. Donald Trump has just withdrawn the US from the Paris Climate Agreement again. Europe has to step up as the US steps back and ensure we no longer rely on allies and suppliers who may leave us out in the cold,” the report says.

In Brief

Mast Reforestation has raised US$25mn to support its efforts cleaning up burnt trees and generating carbon credits to finance the recovery of wildfire-struck forests. The new capital will back the company’s first biomass burial project in Montana, where scorched trees will be sequestered under clay-rich soil to prevent their decay and release of carbon into the atmosphere. The climate pollution saved by this approach can be monetized through credits that landowners can then sell to finance reforestation. Mast anticipates selling up to 30,000 metric tons of carbon credits, enough to finance 900 acres’ worth of forest recovery. (TechCrunch)

Vertical farming company 80 Acres Farms has raised US$115mn, bringing total funding to over $370 million, and acquired Israeli biotech firm Plantae Biosciences to accelerate plant breeding for controlled environments. The tie-up should allow 80 Acres Farms to breed crops optimized for indoor environments, while the fresh capital should help expand the company’s retail footprint and complete a farm expansion project in Kentucky. (AgFunderNews)

RESEARCH

A fire deficit persists across diverse North American forests despite recent increases in area burned (Nature Communications)

Horizons of risk: Climate stress and the Federal Reserve (University of Chicago Business Law Review)

Projection of climate change impact on the occurrence of drought events in Poland (Scientific Reports)

Thanks for reading!

Louie Woodall
Editor