Living with Fire and Water: Resilience Financing for Natural Infrastructure
By Daniel O'Brien View PublicationWildfire and flood risk is accumulating faster than any current financing structure can absorb. Insurers are increasingly transferring this risk with catastrophe bonds but have no way to fund the mitigation that would reduce it. Governments already carry the residual liability, informally and unpriced, and budget for response and recovery far more readily than for prevention. Capital markets price disaster risk with precision yet still have no instrument to convert avoided future losses into present financial value.
The result is a system that reliably funds the aftermath and reliably underfunds the work that would reduce the losses. Within this system, each actor is behaving rationally based on their own incentives. That is why the solution requires a mechanism that connects these actors so that each only benefits when everyone does.
In this new report, Forest Trends Fellow Daniel O’Brien outlines a new financial mechanism that aims to address this issue. Importantly, the proposal doesn’t invent a new financial instrument; it builds on an existing one. Forest Trends is proud to present this bold idea at a time when scaling solutions is more urgent than ever.