USA: Moody’s to incorporate climate change into credit ratings for state & local bonds

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Article
20 December 2017

Commentary: Big Three rating agencies must incorporate climate risks in company policies

Author: Jeff Nesbit, Climate Nexus, The New York Times

"When Climate Change Becomes a Credit Problem", 13 Dec 2017

...Moody’s Investors Service...announced...that it would give more weight to climate change risks in evaluating the creditworthiness of state and local governments...Governments must prepare for heat waves, droughts, flooding and coastal storm surges or face credit downgrades that will make it more expensive for them to borrow money for public services and for improvements in roads, bridges and other infrastructure...Even for governments that act to reduce their exposure to climate risks, the costs of doing so “could also become an ongoing credit challenge,” Michael Wertz, a Moody’s vice president, said.

...Credit agencies have been under pressure for years to give greater weight to the dangers posed by climate change as they evaluate the risks of government bonds...[T]here is a potential climate risk bubble in which an extreme weather event causes damages so catastrophic that taxpayers, insurers, lenders, states and municipalities suffer damages or losses of hundreds of billions of dollars and local and state government face downgrades in their credit worthiness, affecting their ability to borrow money...Smaller credit-rating and bond investor firms are already taking climate risks into account. But the Big Three rating agencies (the other two are Standard & Poor’s and Fitch Ratings) have been slow to take climate risks seriously...

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Article
20 December 2017

Moody's announces decision to assess climate change risks in evaluating government creditworthiness

Author: Moody's

"Moody's: Climate change is forecast to heighten US exposure to economic loss placing short- and long-term credit pressure on US states and local governments", 28 Nov 2017

The growing effects of climate change...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, Moody's Investors Service says in a new report...The report differentiates between climate trends, which are a longer-term shift in the climate over several decades, versus climate shock, defined as extreme weather events like natural disasters, floods, and droughts which are exacerbated by climate trends. Our credit analysis considers the effects of climate change when we believe 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...

..."While we anticipate states and municipalities will adopt mitigation strategies for these events, costs to employ them could also become an ongoing credit challenge," Michael Wertz, a Moody's Vice President says...Moody's analysts weigh the impact of climate risks with states and municipalities' preparedness and planning for these changes when we are analyzing credit ratings. Analysts for municipal issuers with higher exposure to climate risks will also focus on current and future mitigation steps and how these steps will impact the issuer's overall profile when assigning ratings…

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