Climate risk? Credit risk! Moody’s Warns State and Local Governments

Earlier this week, Moody’s Investors Service announced issuance of a report (payment required) warning that:

the effects of climate change, including climbing global temperatures, and rising sea levels, are forecast to have an increasing economic impact on US state and local issuers. This will be a growing negative credit factor for issuers without sufficient adaptation and mitigation strategies.

In other words, if you are an issuer of state or local bonds in an area likely to be impacted by climate trends, and particularly if you are likely to be subject to “climate shocks” that “have sharp, immediate and observable impacts on an issuer’s infrastructure, economy and revenue base, and environment,” be prepared for a downgrade, unless you can demonstrate that you have taken appropriate actions to mitigate those impacts – even if the impacts may not occur until “a number of years in the future.”

Many cities and states are now moving aggressively to adapt to climate change.  Others, to date, have not been doing so.  Perhaps the threat of a downgrade might jump start adaptation among those who have thus far been laggards.

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