{"id":1043,"date":"2017-12-19T09:05:32","date_gmt":"2017-12-19T14:05:32","guid":{"rendered":"http:\/\/blogs.edf.org\/markets\/?p=1043"},"modified":"2017-12-19T09:05:32","modified_gmt":"2017-12-19T14:05:32","slug":"moodys-challenge-prepare-for-climate-change-or-risk-credit-rating-downgrades","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/markets\/2017\/12\/19\/moodys-challenge-prepare-for-climate-change-or-risk-credit-rating-downgrades\/","title":{"rendered":"Moody\u2019s Challenge: Prepare for Climate Change or Risk Credit Rating Downgrades"},"content":{"rendered":"

This post was co-authored by Aurora Barone<\/em><\/p>\n

In the face of havoc wrought by recent storms and hurricanes<\/a>, Moody\u2019s Investors Services, Inc. has declared that state and local bondholders must account for climate change or face downgrades. It is the first of the three major credit rating agencies to incorporate climate change risks into its ratings assessment, a move that may incentivize policymakers to make smarter, long-term investments in resilience efforts like stormwater systems or flood management programs.<\/p>\n

Bond rating agencies like Moody\u2019s help investors determine the risk of companies and governments defaulting on repayments. Revenue, debt levels, and financial management are all common measures of creditworthiness.<\/p>\n

States at high risk–mainly on the coast–including Texas, Florida, Georgia and Mississippi, will have to account for how they are preparing for the adverse effects of climate change, including the effects of storms and floods, which are predicted to become more frequent and intense as temperatures climb.<\/p>\n

In its report to its clients, Moody\u2019s outlined parameters that it will use to assess the \u201cexposure and overall susceptibility of U.S. states to the physical effects of climate change.\u201d<\/a> Some of these parameters<\/a> include reviewing an area\u2019s economic, institutional, fiscal strengths, and susceptibility to event risk \u2013 all of which will influence the borrower\u2019s ability to repay debt. Coastal risks, like rising sea levels and flooding, and an increase in the frequency of extreme weather events, like tornadoes, wildfires, and storms, are just a few of the indicators that will be incorporated into the rating.<\/p>\n

This wasn\u2019t always the case. Take New Jersey\u2019s Ocean County, for example. In 2012, Hurricane Sandy devastated Seaside Heights, destroying local businesses and oceanfront properties. Yet, last summer, Ocean County sold $31 million in bonds maturing over 20 years<\/a> \u2013 bonds which received a perfect triple-A rating from both Moody\u2019s and S&P Global Ratings. In 2016, major bond companies issued triple-A ratings for long-term bonds to Hilton Head and Virginia Beach, despite the U.S. Navy\u2019s warnings that the latter faced severe threats from climate change. A recent World Bank study<\/a> calculated future urban losses that many coastal cities may face because of climate change; Miami, New York, New Orleans, and Boston ranked highest in overall risk.\u00a0 In March 2016, Moody\u2019s and S&P gave top ratings to bonds issued by Boston of $150 million maturing over 20 years, evidently not accounting for any associated climate risks.<\/p>\n

In Moody\u2019s new effort to incorporate the risk of climate change into its ratings, it is trying to account for \u201cimmediate and observable impacts on an issuer\u2019s infrastructure, economy and revenue base, and environment\u201d<\/a> as well as economic challenges that may result, such as \u201csmaller crop yields, infrastructure damage, higher energy demands, and escalated recovery costs\u201d.<\/p>\n

The hope: in facing the threat of a rating downgrade and more expensive debt, local governments should move to implement major adaptation and resilience projects as a way to entice investors, and of course, to plan for the effects of climate change.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

This post was co-authored by Aurora Barone In the face of havoc wrought by recent storms and hurricanes, Moody\u2019s Investors Services, Inc. has declared that state and local bondholders must account for climate change or face downgrades. It is the first of the three major credit rating agencies to incorporate climate change risks into its …<\/p>\n","protected":false},"author":8819,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[],"class_list":["post-1043","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nMoody\u2019s Challenge: Prepare for Climate Change or Risk Credit Rating Downgrades - Market Forces<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.edf.org\/markets\/2017\/12\/19\/moodys-challenge-prepare-for-climate-change-or-risk-credit-rating-downgrades\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Moody\u2019s Challenge: Prepare for Climate Change or Risk Credit Rating Downgrades - Market Forces\" \/>\n<meta property=\"og:description\" content=\"This post was co-authored by Aurora Barone In the face of havoc wrought by recent storms and hurricanes, Moody\u2019s Investors Services, Inc. has declared that state and local bondholders must account for climate change or face downgrades. 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