One of the largest credit rating agencies in the country is warning U.S. cities and states to prepare for the effects of climate change or risk being downgraded.

In a new report, Moody's Investor Services Inc. explains how it assesses the credit risks to a city or state that's being impacted by climate change — whether that impact be a short-term "climate shock" like a wildfire, hurricane or drought, or a longer-term "incremental climate trend" like rising sea levels or increased temperatures.

Ratings from agencies such Moody's help determine interest rates on bonds for cities and states. The lower the rating, the greater the risk of default. That means cities or states with a low rating can expect to pay higher interest rates on bonds.

"This puts a direct economic incentive [for communities] to take protective measures against climate change," says Rachel Cleetus, the lead economist and climate policy manager at the Union of Concerned Scientists.

It can be difficult for a policymaker to justify a big investment when the associated benefits or risks seem a long way down the road. Moody's announcement may change that.

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Credit Rating Agency Issues Warning On Climate Change To Cities | NPR

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