Three differences between ICE Climate data and the FEMA National Risk Index

Difference #1. ICE Climate data is obligor specific

FEMA’s National Risk Index (NRI) provides estimates of physical risks for perils like hurricanes, floods, ice storms, earthquakes, and wildfire at the census tract and county level. However, the boundaries of many municipal bond obligors—including school districts, utilities, towns, cities, municipal utility districts, fire districts, and community development districts, among others—do not match up with census tract or county boundaries.

To assess obligor-specific physical climate risk for the municipal bond market, ICE Climate builds climate conditioned hazard models for coastal and inland flooding, hurricanes, and wildfires, estimating these risks at a base resolution of 100 m x 100 m across the U.S. This geospatial resolution is important—flood risks, for example, can vary over distances of just a few hundred meters due to changes in topography (among many other factors).

In addition to ICE Climate’s own hazard models, we also process the raw NRI estimates, downscaling them based on high resolution information about the locations of structures on a 100 m x 100 m grid across the US, and then reaggregating these estimates back up to any boundary of interest. (See this article for more details on these inferences methods.)

The bottom line: ICE Climate provides obligor specific physical risk estimates based on our own in-house models of wildfire, flood and hurricane, as well as enhanced obligor specific inferences for the NRI itself using our sophisticated downscaling and reaggregation techniques.

Difference #2. ICE Climate incorporates climate change projections

There is strong evidence in the scientific literature that climate change is making extreme weather events more frequent and more intense. The FEMA NRI is a snapshot of risk in time, but many municipal bonds have maturities of 10 or 20 years. ICE Climate uses the outputs of earth system models—the same models used by the Intergovernmental Panel on Climate Change—to project hazard risks forward in time, informing stakeholders about risks today and potential changes in risk in the future. It is worth noting that FEMA has developed a prototype for future risk across several perils, but it a separate tool from the existing NRI and it is at the county level. 1

Difference #3. Portfolio analysis

Over the past five years, ICE Climate has built a geospatial library of municipal bond obligors, linking these obligor locations and boundaries to individual securities for over 90% of the $4.1T market. With this library, obligor-specific climate risk assessments are linked to individual securities at the CUSIP level. This CUSIP linkage enables clients to gain a systematic and consistent portfolio wide view of their physical climate risk exposure.