Moody's Environmental Risks: Evaluating the Impact of Climate Change on U.S. State and Local Issuers
This report from Moody's Investor Services discusses potential credit rating impacts from the exposure and vulnerability of U.S. state and local governments to economic losses from climate change. The report notes that without adaptation, state and local governments will face increasing risks risks from severe heat, changing precipitation patterns, and rising sea levels - and that these risks will become more severe over time. The economic impacts of climate change will include property damage, lowered productivity, health impacts, and increasing energy use. The report describes the methodology that Moody's is using to evaluate climate-driven credit risks - evaluating both the exposure of bond issuers to climate shocks as well as indicators of resilience that will help a community weather those shocks.
The report includes a narrative summary of the primary risks each region in the U.S. will face from climate change, and tables evaluating the exposure of each U.S. state to climate risks. Factors considered in determining risk include a community's vulnerability to economic disruption, physical damage, health and public safety impacts, and population displacement. The methodology also considers a state or local government's strengths including its access to funding to support recovery, financial flexibility, how it is managing capital assets, governance strengths, and other credit factors. For communities with higher risks, Moody's is asking about preparedness and adaptation activities during the credit rating process.
The report also provides several case study examples of where natural hazard events caused significant economic disruption to a local government or a region and examples of where a credit downgrading was warranted based upon the significance of the disruption to the a city's economy, revenues, and ability to fund ongoing operations. The report notes economic disruptions in New Orleans after Hurricane Katrina, the Lake Oroville Dam failure in California, and impacts from Hurricane Sandy.
A more detailed report is available on Moody's website for a fee.
Publication Date: November 28, 2017
- Moody's Investor Services