Resilience was first defined as the ability of a material under stress to bounce back to its original strength. In the context of underwriting standards for buildings, homes and infrastructure, resilience is defined as: carbon pollution reduction and adaptation. This definition is from the National Consensus Resilience Underwriting Standards for Buildings, Homes and Infrastructure (RELi), which were unanimously approved in the Capital Markets Partnership’s (CMP) ANSI accredited process.
Since the early days of the commercial sailing industry, cargo was insured by the underwriter who signed its name under the manifest heading. Today underwriting standards are used by Wall Street to measure increased cash flow and reduced risk for bonds, stocks, and direct equity investments.
Due to unprecedented costs and risks, resilience is arguably the top global challenge, and consensus standards can be a big part of the solution, protecting human health, property, and the environment from accelerating rising seas and more intense storms, precipitation, floods, droughts, wind, wildfires, and many other systemic risks.
For example, using RELi and state / city data, Massachusetts and Pennsylvania’s existing, partial resilience costs were documented in detailed litigation exhibits at $1.6 trillion and $5.3 trillion, respectively. The Massachusetts costs include $316 billion to address rising seas. As reported to
Standard & Poor’s (S&P), the world’s largest credit rating agency, US resilience costs are estimated at $100 trillion. Based on these well-documented, accelerating and systemic risks, S&P and Moody’s are issuing climate credit rating downgrades to municipalities and businesses adversely affected, as required by law to alert investors. In fact, CalSTRS, a $200 billion pension fund, Mercer, and sixteen other large institutional investors calculated that 6% of all investments (about $15 trillion) are lost to climate damages.
Investors with over $70 trillion in assets want to buy green + resilient bonds, as documented in the Green Bond Business Case released at the NYSE. RELi underwriting standards are an important mechanism to access these funds. They certify new and upgraded infrastructure as having a positive impact on resisting climate damages, thus resulting in higher bond credit ratings. Wall Street requires consensus standards to reduce risk and uncertainty through peer-review. Due process protections are needed to commercialize public / private technologies like resilience. Trillions of dollars of market share are at stake for resilience, and only consensus standards give stakeholders a required seat at the table to define standards’ content and revisions. Also, only consensus standards protect against antitrust that can strike down non-consensus standards, like current challenges with other non-consensus green building standards.
Resilience is a top New Jersey priority according to George Vallone, President of Hoboken Brownstone Company, a leading brownfields redeveloper, Chairman of CMP’s Board Strategic Planning Committee, and Past President of New Jersey Builders Association. He has pointed out that ”New Jersey’s infrastructure leaders see value in Green + Resilient Bonds using RELi to improve customer relations and brand, based on meetings with New Jersey bond issuers and investors.” RELi allows infrastructure bond issuers to access financing on more-favorable terms though objective, consensus performance metrics.
Consensus underwriting standards are used for higher rated green + resilient bonds. RELi is the basis of higher Green Home Bond credit ratings issued for reduced operating costs from energy and water efficiency and onsite green power, and as well as 20 other green home attributes which increase bond cash flow and reduce risk.
RELi is simply an add-on to the normal bond underwriting due diligence process. It’s similar to the American National Standard Phase 1 Environmental Assessment Standard used for commercial mortgage backed security bonds (CMBS) since 1986 and codified by EPA. The Phase 1 provides a statutory defense to strict, joint, several, retroactive, and perpetual liability. It unfroze US real estate transactions and helped drive CMBS to a trillion dollar industry before the credit crisis.
Doug Pierce, AIA, LEED Fellow, with Perkins+Will and Chairman, National Consensus Resilience Committee emphasizes: “our clients are very excited about RELi’s results. It is a top Firm priority as well as the American National Integrative Process (IP) Standard which is part of RELi. Fireman’s Fund’s IP Construction Risk Reduction Statement shows the added value to the design process especially to building owners.” IP reduces construction change orders by 90% as documented by the Navy, and cuts construction costs by 1%-10%. An example is Heathrow Airport’s renovation using IP reducing construction costs by $125 million (10% of the project value). For these reasons, IP is the Reference Standard for the integrative design credit available for all LEED green building projects., IP is recommended by the finance community as a condition to construction financing at the Boston Fed RELi national public meeting.
RELi addresses correlative risk required to bring insurers back into the market to cover resilience and issue discounts like they do for LEED green properties. For its clients, Perkins+Will uses RELi to address correlative risk, which can cause entire regions to shut down. For example, a large hospital client wanted to remain open as Category 4 hurricanes remained frequent in its area, but Perkins+Will correlative risk evaluation determined this needed to be prevented because the local wastewater treatment facility would not operate, thus requiring corrective resilient design. During Hurricane Sandy, the Passaic Valley wastewater treatment plant shut down for a number of days, having a similar effect.
RELI incorporates many other standards. RELi includes the insurance industry’s Fortified, Institute for Sustainable Infrastructure’s Envision, Red Cross Ready Rating Program for Disaster Preparedness, FEMA 141: Emergency Management Guide for Business + Industry,
U.S. Small Business Administration + Prepare My Business.Org, LEED, and IP. RELi was adopted by credit rating agencies and investment banks, the State of Minnesota, Minnesota GreenStep Cities, and American Institute of Architects and US Green Building Council Minnesota.
IP, Green Bond Business Case, and RELI Green Building, Green Home, Sustainable Infrastructure, Productivity, and Sustainable Manufacturing Underwriting Standards are available on the ANSI Webstore.
Contributing Author: Mike Italiano, Founder, US Green Building Council, Principal, Green Securities, LLC, CEO, Capital Markets Partnership
Mike is Chief Executive Officer, Market Transformation to Sustainability (MTS) and Capital Markets Partnership (CMP). He founded CMP, MTS, U.S. Green Building Council (USGBC) and ASTM Committee E50 on Environmental Assessment. He is a Director of MTS, CMP, and past: Director, Sustainable Furnishings Council & ASTM, CEO, USGBC, and Chairman, ASTM E50.
