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Rating Agencies Factor Severe Weather Risks Into Cities’ Credit Scores

Mariamichelle / Pixabay

Mariamichelle [2] / Pixabay

Natural disasters brought on by climate change are emerging as a threat to local governments’ credit ratings, as rating agencies get serious about factoring climate risk into their financial assessments.

“Whatever the debate about climate change may be in [the U.S.] Congress or on the presidential campaign trail, it is clear that natural disasters—from hurricanes and wildfires to snowstorms and tornados—are becoming more commonplace and severe throughout the country,” writes Governing columnist Frank Shafroth. “For state and local leaders, this intensification is not only a threat to lives and personal property, but also to the fiscal stability of their communities.”

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Although “it should come as no surprise,” the challenge for municipalities is that agencies like Standard & Poor’s are including resilience as a criterion in their rating systems. “We continue to review the relevance of climate risk for creditworthiness and how we assess and present it as a risk factor in our analysis,” S&P recently reported.

“When it comes to natural disasters, the task of protecting lives, property, and the fiscal stability of a community falls disproportionately on states and localities,” Shafroth notes. “Especially the latter because of the responsibilities they have, including zoning, emergency planning, and the need to find the funding to undertake protective measures.” He cites jurisdictions like Biloxi-Gulfport, Mississippi, which mandated an 800-foot distance from new casinos to the shoreline after Hurricane Katrina stormed ashore in 2005.

“In Virginia’s Hampton Roads region, coastal cities are investing in research and planning ways to diminish the negative effects of rising seas,” he writes. “Norfolk, which is home to the world’s largest naval base, has been developing initiatives to learn about the impact of recurrent flooding in coastal cities around the globe.” (h/t to Environmental News Bits [4] for pointing us to this story)