Climate-change risks may lower municipal credit ratings

Moody's is the first major credit rating agency to publicly announce that preparation for climate change will affect municipal ratings

Miami /
Dec.December 03, 2017 12:30 PM

High-tide flooding in Miami Beach (Source: CBS)

Credit rating agency Moody’s Investor Services Inc. warns that it may downgrade the ratings of U.S. states and cities that fail to prepare for the impact of climate change.

Moody’s is the first of the three largest credit rating agencies in the nation to publicly announce how its assessment of vulnerability to climate change will affect its state and municipal credit ratings.

Moody’s says in a new report that it will assess vulnerability to a hurricane and other types of short-term “climate shocks” as well as a long-term “incremental climate trend” such as sea-level rise.

Credit rating agencies play a big role in determining interest rates on bonds that states and cities issue.

So, Moody’s announcement creates “a direct economic incentive” to protect against climate change, Rachel Cleetus, lead economist and climate policy manage at the Union of Concerned Scientists, told the Wall Street Journal.

According to the Moody’s report, the credit rating agency has designated seven “climate regions” in the United States, which will provide a basis for assessing climate-change risks.

Moody’s analysts have started asking cities, counties and states that face serious climate-change risks to explain how they are mitigating the risks.

For example, Broward County has responded to surveys from Moody’s inquiring about actions to mitigate the risk of sea-level rise, according to Jennifer Jurato, the county’s chief resilience officer.

Jurato told National Public Radio (NPR) that Broward and other jurisdictions in South Florida are bracing for the impact of climate change by putting properties on higher elevations and carrying out flood-mitigation programs, among other actions. Broward and other counties are members of the South Florida Regional Climate Compact, which was established to help communities brace for climate change.

Jurato also told NPR that Moody’s emphasis on vulnerability to climate change creates a new political incentive “to make the smart investments that we’ve been arguing for.” [NPR] – Mike Seemuth


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