SAN DIEGO - The evolving understanding of climate change poses challenges in evaluating and disclosing municipal securities risk, said panelists at The Bond Buyer's California Public Finance Conference Thursday.
"With climate change as with all things, we are trying to look around the next corner to what is coming up, so you don't get bitten if you don't include something in the disclosure documents," said Lisa Quateman, a managing partner with Polsinelli LLP.
The Securities and Exchange Commission published a release in February 2010 providing guidance on climate change at the request of 100 institutional investors seeking guidance representing trillions of dollars, Quateman said. Since then, SEC guidance has lost some of its steam, she said.
But Quateman and other panelists said climate change is something that issuers need to analyze and provide disclosure about in offering documents.
"Climate change isn't a static issue," Quateman said. "The challenge I find is determining what you have to disclose about events that are speculative or uncertain."
The SEC guidance indicates issuers should disclose the magnitude of the event, without clogging the system with unnecessary details, she said.
Moderator Geoff Buswick, a Standard & Poor's managing director, pointed to the impact that rising sea levels might have on water districts.
If sewer systems are gravity-based and sea levels rise, those systems won't work anymore, Buswick said. Issuers have to analyze the danger of that happening and decide what to include in disclosure documents.
"The team has to be able to discuss issues as they arise," Buswick said.
The impact of California's three-year drought is issuer specific, Quateman said.
"Some issuers don't have concerns, others will have to take a deeper dive into how the drought will impact future costs," Quateman said.
Quateman said some issuers in California have included rising sea levels in their disclosures using information from a state commission report on rising sea levels along the California coast.
Issues to evaluate include looking what the impact is on the operation, whether the issue is rising sea levels or cap-and-trade legislation.
Are there compliance costs that can be evaluated? What is the demand for goods and services and how will that be impacted?
Climate change needs to be included in the total approach, Quateman said.
"Make sure people on the team are thinking about this," she said. "And develop internal controls so you do evaluate this periodically."