The New York Times: When Climate Change Becomes a Credit Problem

This year has shown that disasters linked with climate change carry enormous economic costs, and communities that ignore the risks of climate change can expect increased upfront borrowing costs. “In a welcome but long overdue development, one of the world’s leading credit-rating agencies, Moody’s Investors Service, announced recently that it would give more weight to climate change risks in evaluating the creditworthiness of state and local governments,” explains Jeff Nesbit for the New York Times. “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.” Small credit rating agencies, bond firms and the reinsurance industry have moved quicker than major firms like Moody’s, Standard & Poor’s and Fitch. The US credit agencies conduct financial research, rating government and corporate borrowers from around the world. Bond buyers do not want to lend to vulnerable locations, and borrowers who prepare do not want to pay the same rates as companies or communities that ignore risks. Nesbit concludes that Moody’s hopes to avoid a risk bubble like the subprime mortgage crisis that triggered global recession in 2008. – YaleGlobal