Moody’s Warns Cities to Address Climate Risks or Face Downgrades
Moody’s Investors Service, Inc. recently announced it will incorporate climate hazards into its credit ratings for state and local bonds. If cities and states do not plan for “sufficient adaptation and mitigation strategies,” they are at higher risk of default and therefore could face lower credit ratings.
Failure to plan effectively for extreme weather events results in local economic challenges, such as “smaller crop yields, infrastructure damage, higher energy demands and escalated recovery costs.”
Moody’s credit analysis will consider the effects of climate change when a “meaningful credit impact is highly likely to occur and not be mitigated by issuer actions, even if this is a number of years in the future.” Analysts plan to factor these climate-related impacts into an examination of “an issuer's economy, fiscal position and capital infrastructure, as well as management's ability to marshal resources and implement strategies to drive recovery.”