Flood and drought risk in water-utility bond markets

Floods and droughts change the cost of running a water system. Bond investors can price that exposure into the yield a utility pays.

Using water-bond data from 2009 to 2019, this Environmental Science & Technology paper finds that coastal flood risk was priced at about 3–6 basis points per risk-score unit from 2013 to 2019, and riverine flood risk at about 5–11 basis points per unit from 2009 to 2013. Those effects were concentrated in the Pacific Coast and Great Plains, respectively. Drought pricing was less uniform. Water use and investors’ perception of climate change also channeled how water risk entered the yield.