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U.S. Cities, States Will See Bond Ratings Dive Unless They Address Climate Risk

David Shankbone/Wikimedia Commons

Moody’s Investors Service issued a stark warning this week to coastal states and communities across the United States: If they fail to prepare for the local impacts of climate change, they’ll lose the favourable bond ratings that give them access to cheap credit.

“What we want people to realize is: If you’re exposed, we know that. We’re going to ask questions about what you’re doing to mitigate that exposure,” Moody’s Managing Director Lenny Jones told Bloomberg. “That’s taken into your credit ratings.”

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In a report to clients Tuesday, Moody’s “explained how it incorporates climate change into its credit ratings for state and local bonds,” the news agency reports. “If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default.”

The report lists six indicators Moody’s uses to assess a jurisdiction’s vulnerability to climate impacts, including “the share of economic activity that comes from coastal areas, hurricane and extreme weather damage as a share of the economy, and the share of homes in a flood plain,” Bloomberg notes. “Based on those overall risks, Texas, Florida, Georgia, and Mississippi are among the states most at risk from climate change. Moody’s didn’t identify which cities or municipalities were most exposed.”

“This kind of publication shoots for municipalities to think harder about disclosure,” said Adam Stern, senior vice president at Boston-based Breckinridge Capital Advisors. “The action would start to happen when and if you start seeing downgrades.”

As recently as May, Bloomberg was reporting that “towns and counties were able to secure AAA ratings despite their risks of flooding and other destruction from storms, which are likely to be more frequent and intense because of climate change,” the news agency now notes. On Tuesday, Jones said Moody’s “had been pressured by investors to be more transparent about how it incorporates climate change into the ratings process. Some praised the move, while also urging it to go further.”