Report: $269 billion in California credit union assets face climate risk losses
Wildfire and other disasters may strike anytime, leaving more than personal devastation in their wake. They can also damage financial institutions, according to a report released last month by Filene Research Institute that warns more risk is at hand.
The first-of-its-kind study titled, “The Changing Climate for Credit Unions” conducted by the Madison, Wisc., industry think tank points out that 60% of credit unions risk climate-related losses relative to disasters.
These climate-fueled, tragic events jeopardize can not only upend the lives of residential and commercial property owners. They place the lenders at risk.
Filene Research Institute, in coordination with Boston-based Ceres Accelerator that studies banking and finance trends, found $1.2 trillion in U.S. assets remain in jeopardy “due to climate change.”
In California, 1,526 credit union branches managing an estimated $269 billion in assets and $147 billion in loans are considered “at risk,” Filene Research reports.
Last year, the U.S. experienced losses amounting to $145 billion in property damages and 688 lives from extreme weather events, the National Oceanic and Atmospheric Administration estimated. NOAA added that 40% of U.S. residents live in counties hit by climate disasters.
Longtime Santa Rosa resident Tracy Condron lived the experience on one fateful October 2017 night that she never slept through, when ash rained down, blanketed and turned her dark-colored Trex deck a light gray, thus signaling it was time to go.
“The wind was something I’ve never experienced, and the sound I remember is propane tanks exploding,” she said of what Bay Area meteorologists refer to as Diablo winds.
When she tripped the garage door to drive away at 1 a.m., she noticed the wind raged so hard it had blown a mound of leaves in a pile taller than her car.
“You know, people ask: ‘What would you grab?’ I couldn’t see. I was wearing a headlamp. But I could see flames come over the hill,” she said, referring to the Fountaingrove Parkway ridge. She escaped to a law firm office off Stony Point Road that confirmed the inevitable tragedy. The Tubbs Fire consumed her Fountaingrove home, among thousands of other residents’ and businesses. The fire raged into town, also taking out the nearby, former Hilton Sonoma Wine Country hotel and Paradise Ridge Winery.
“This one (wildfire) took out so many homes,” said Condron, the communications manager for Redwood Credit Union.
One of the suggestions the report provides covers “what credit unions can do to respond to the climate crisis.” Examples may include internal efforts that support their employees or outreach that benefits the whole community, the report says.
Redwood Credit Union, partnering with California Sen. Mike McGuire, D-Healdsburg, and the Press Democrat newspaper, opened the North Bay Fire Relief Fund within 48 hours to benefit 2017 fire victims and survivors. (The North Bay Business Journal is owned by the same company as the Press Democrat, which is Sonoma Media Investments.)
The North Bay relief fund, managed through the nonprofit formed in 2013 under the RCU name, raised more than $32 million from 41,000 donors from all U.S. states and 23 countries to help assist 2017 fire victims.
“When disaster strikes, credit unions need to make sure that their members have access to their money, so focusing on business continuity is essential,” Redwood Credit Union President and CEO Brett Martinez told the Business Journal. “Credit union leaders have been having many discussions around this over the past few years, sharing their experiences, preparedness practices and also offering support to other credit unions when disasters strike.”
On a national scale, the National Credit Union Foundation has created “CUAid,” a relief fund for credit union employees impacted by disaster.
“A lot of these losses can be made up by insurance. The most detrimental impact credit unions are seeing is the impact on operations because of what happens to its employees,” California/Nevada Credit Union Leagues spokesman Matt Wrye said.
The regional trade group is hosting a seminar on July 12 designed to explore the impact and share solutions by expert panelists. Since undergoing wildfire losses within its membership in 2015, 2016, 2017 and 2019, Redwood Credit Union may be considered to serve on the panel, Wyre noted.
More from the finance world
A similar study relative to climate change for banks came out in October 2021 out of the Biden Administration’s Financial Stability Oversight Council. The FSOC, which was set up under the Dodd-Frank Wall Street Reform and Consumer Protection Act, is charged with identifying risks to U.S. financial security.
In doing so, it also came out with a first-of-its kind study tasked with identifying “climate change as an emerging and increasing threat to U.S. financial stability,” the U.S. Treasury reported.
The study advises banks to assess their exposure levels to climate change disasters, provide disclosures to investors and build a database to measure risk.
The U.S. Securities and Exchange Commission has joined the fray by evaluating its disclosure rules and requests public comment on the subject. In addition, the Federal Reserve Board has established two committees to develop a better understanding of the risks.
Area economists are sitting up and taking notice of the looming risks around the corner.
“With climate’s slowly-evolving risk, in the long term, banks will have to assets that risk more completely,” Sonoma State University Economics Professor Robert Eyler said. “This is as weather becomes normal with more extreme conditions, there’s a higher probability of risk.”
Susan Wood covers law, cannabis, production, tech, energy, transportation, agriculture as well as banking and finance. For 27 years, Susan has worked for a variety of publications including the North County Times, Tahoe Daily Tribune and Lake Tahoe News. Reach her at 530-545-8662 or susan.wood@busjrnl.com
