Climate adaptation is increasingly a necessity for U.S. cities facing growing flood risks. Yet, adaptation efforts are uneven, with some cities failing to reach necessary levels of protection against climate impacts. Research by Shirley Lu, HBS Assistant Professor of Business Administration and member of D^3’s Climate and Sustainability Impact Lab, and Anya Nakhmurina, Assistant Professor of Accounting Yale School of Management, provides new insights into the reasons for this adaptation gap. Through their study, “Financial Constraints and Short-Term Planning Are Linked to Flood Risk Adaptation Gaps in US Cities,” they reveal that financial limitations and planning horizons are the primary obstacles, while political leanings do not significantly impact adaptation levels. As flooding risk increases, policymakers must factor climate resilience into their planning and consider policy solutions to address adaption gaps.
To conduct their research, the authors used financial documents (budgets, annual comprehensive financial reports, and bond prospectuses) from 431 U.S. cities from 2013-2020 to develop a textual analysis of the cities’ levels of flood adaptation.
Key Insight: Effective Adaptation Strategies Vary Across Hard and Soft Solutions
“We follow the literature and consider two adaptation categories: hard and soft adaptation.” [1]
Lu and Nakhmurina categorize flood adaptation strategies into “hard” and “soft” adaptation measures:
- Hard adaptation includes physical infrastructure projects such as seawalls.
- Soft adaptation involves natural solutions like beach nourishment.
The study found that high-flood-risk cities invest in both types of adaptation but often lack the resources for comprehensive implementation, resulting in reliance on less costly soft adaptation methods where possible.
Key Insight: Financial Constraints Limit Adaptation Efforts
“Financial constraints appear to be more important in the areas that face high flood risks and in the counties where the citizens expect their local officials to do more.” [2]
Financial constraints are a critical determinant of whether a city can adequately respond to flood risks. Lu and Nakhmurina’s analysis shows that financial constraints are particularly challenging in high-risk areas where citizens also expect more proactive local governance on climate issues. This situation often leads to adaptation gaps, especially in cities with lower household income levels or limited state grants for resilience, and where hard adaptation strategies (that are capital-intensive and require sustained investment) are needed.
Key Insight: Short Planning Horizons Prevent Long-Term Solutions
“Cities with a one-year shorter budget planning horizon are 4% more likely to have an adaptation gap.” [3]
Beyond financial resources, planning horizons also play a significant role in adaptation gaps. Lu and Nakhmurina found that cities with shorter-term budget planning are less likely to reach effective adaptation levels, particularly for hard adaptation measures that necessitate long-term investment. They found that cities with both high and low flood risks that used long-term planning horizons showed smaller adaptation gaps.
Key Insight: Political Leanings Have Minimal Influence on Flood Adaptation
“We do not find that political affiliation is associated with having an adaptation gap.” [4]
Contrary to common assumptions, the research reveals that political affiliation has little to no effect on a city’s adaptation efforts. Although Republican-led cities tend to have more conservative views on climate change, the authors found no substantial difference in adaptation efforts between Republican and Democratic cities, particularly for hard adaptation strategies. Lu and Nakhmurina attribute this to the pragmatic needs of city leaders, who prioritize flood mitigation measures regardless of political stance.
Why This Matters
Lu and Nakhmurina’s research highlights critical barriers that U.S. cities face in adapting to increasing flood risks, with financial limitations and short-term planning as primary challenges. They point out that “Understanding the factors behind the adaptation gap is crucial to
inform policymaking in the wake of escalating climate risks.” For policymakers, these findings underscore the need to design funding mechanisms and policy frameworks that enhance cities’ financial flexibility and encourage long-term resilience planning. Addressing these adaptation gaps requires supporting local governments with stable funding sources, extended planning horizons, and incentives for both hard and soft adaptation strategies. By focusing on these areas, policymakers can empower cities to implement more effective flood resilience measures, protect vulnerable communities, and foster a climate-resilient economy.
References
[1] Shirley Lu and Anya Nakhmurina, “Financial Constraints and Short-Term Planning Are Linked to Flood Risk Adaptation Gaps in US Cities”, Communications Earth & Environment, (January 1, 2024): 1-13, 2.
[2] Lu and Nakhmurina, “Financial Constraints and Short-Term Planning Are Linked to Flood Risk Adaptation Gaps in US Cities”, 2.
[3] Lu and Nakhmurina, “Financial Constraints and Short-Term Planning Are Linked to Flood Risk Adaptation Gaps in US Cities”, 3.
[4] Lu and Nakhmurina, “Financial Constraints and Short-Term Planning Are Linked to Flood Risk Adaptation Gaps in US Cities”, 2.
Meet the Authors
Shirley Lu is an Assistant Professor of Business Administration in the Accounting and Management Unit and a member of D^3’s Climate and Sustainability Impact Lab. She teaches the Financial Reporting and Control course in the MBA required curriculum.
Anya Nakhmurina is an Assistant Professor of Accounting at the Yale School of Management. She studies the information environment of U.S. municipalities, with a focus on financial reporting transparency. Nakhmurina explores two interconnected topics: stewardship and information roles of municipal disclosures and is particularly interested in exploring cities’ disclosures to understand their decisions concerning climate change adaptation and mitigation.