Save The Blue Frog

Category: Regulatory Risk

  • Storm Flooding Catastrophes: Assessing A Region’s Response Capability

    Two weeks ago, a storm flood surged through the Hill Country of central Texas, inflicting more than one hundred fatalities. Last year, Hurricane Helene caused a similar level of damage in North Carolina and other southeastern U.S. communities. Neither of these events, though, matched the destructive power of Hurricane Katrina in 2005; striking New Orleans and surrounding communities, it was responsible for more than 1,000 fatalities.

    Commercial and residential property owners, insurers, and mortgage lenders must assess the capabilities of regional response functions to minimize the enormous social, financial, and environmental costs of such storms. Can they learn from the experience of the Hill Country storm, the most recent event to generate such catastrophic losses?

    Yes, they can, if they utilize a standard set of analytical questions that should be applied to all regional catastrophic readiness functions:

    a. Is an entity held responsible for assessing the region’s catastrophic readiness?

    b. Does that entity develop and publish a plan to maintain its readiness?

    c. Can the region implement the plan when a storm strikes?

    d. Does the plan employ standardized metrics that are defined by credible organizations?

    e. Does an independent entity review the assessment process on a periodic basis?

    Professional analysts will inevitably agree on certain answers to these questions and disagree on others. It’s important, though, that they all utilize the same publicly available information to develop their informed opinions. For instance, regarding the Hill Country case:

    a. The web site of the Texas Water Development Board’s State Flood Planning function contains material information about flood assistance programs, management training, community resources, and other relevant functions.

    b. The web site of the Development Board’s State Flood Plan contains significant supporting information about the state’s “… effort to perform comprehensive planning to reduce flood risk and take a broad look at flood hazard across the state.”

    c. The 245 page PDF document entitled 2024 State Flood Plan is the most recent comprehensive state-wide plan; thus, it reflects the current status of the region’s readiness to respond to catastrophic floods.

    Reasonable minds may certainly differ about how the data in such sources may impact an assessment of a regional response function. Nevertheless, reasonable minds should all agree on the relevance of the (above) five questions and the need to utilize a region’s published information for assessment purposes.

  • Staying Focused On Regulatory Risk

    What is the greatest short term threat to financial profitability? For many organizations, the obvious answer is now “protective tariffs.” That’s a reasonable reply, but regulatory risk may represent a potentially greater long term threat to corporate performance.

    Earlier this week, for instance, Chevron lost an environmental lawsuit and was ordered to spend three quarters of a billion dollars to restore a damaged region of Louisiana wetlands. In certain respects, the case was reminiscent of General Electric’s historic half a billion dollar legal order to remove toxic PCB waste from the bed of the Hudson River.

    And a few days ago, the German financial institution Deutsche Bank was assessed a “greenwashing” penalty of 25 millions euros for making misleadingly rosy statements about its ESG practices. Though tiny in comparison to the Chevron penalty, the assessment served as a regulatory signal that firms will be held liable for unsupported public statements regarding sustainability and resilience.

    Both firms faced regulatory risks related to sustainability concerns. Only Chevron, though, confronted a concern involving actual environmental damage. Thus, it “paid the price” in the form of a far greater penalty.

    Tariffs can inflict tremendous harm on an economic system, but they can appear or disappear in the blink of an eye. Regulatory risks regarding sustainability and resilience, on the other hand, can impose damages that may linger indefinitely.