Moody's To State & Local Governments - Prepare For Climate Change Or Lose Access To Cheap Credit

The 2017 Atlantic hurricane season, which officially began on June 1 and ends today, featured the highest number of major hurricanes since the 2005 season and was only the second time that two Category 5 hurricanes made landfall. However, it was by far the costliest hurricane season on record, with a preliminary total of $368.7 billion in damages, more than twice the cost in 2005. Nearly all of the damage resulted from the season’s three major hurricanes, Harvey, Irma and Maria. Yesterday, nine scientists writing in PLOS ONE estimated that almost 14,000 DINAA archaeological sites (Digital Index of North American Archaeology) on the Atlantic and Gulf Coasts in the US could be lost by 2100 as seas rise due to climate change.

In these circumstances, it’s not surprising that the rating agencies are looking to incorporate risks from climate change, e.g. rising seas and major storms, into the credit ratings of public sector borrowers with coastal communities. Business Insurance magazine quotes from Moody’s report.

“Climate shocks or extreme weather events have sharp, immediate and observable impacts on an issuer’s infrastructure, economy and revenue base, and environment,” the New York-based ratings agency said in its report published Tuesday. “As such, we factor these impacts into our analysis of an issuer's economy, fiscal position and capital infrastructure, as well as management’s ability to marshal resources and implement strategies to drive recovery. The interplay between an issuer's exposure to climate shocks and its resilience to this vulnerability is an increasingly important part of our credit analysis and one that will take on even greater significance as climate change continues.”

Moody’s acknowledges that there is likely to be some adaptation on the part of state and local governments in the form of mitigation strategies to lessen the impact. Nonetheless, the rating agency is serving a warning, as Bloomberg notes.

“Coastal communities from Maine to California have been put on notice from one of the top credit rating agencies: Start preparing for climate change or risk losing access to cheap credit. In a report to its clients Tuesday, Moody’s Investors Service Inc. explained how it incorporates climate change into its credit ratings for state and local bonds. If cities and states don’t deal with risks from surging seas or intense storms, they are at greater risk of default.

"What we want people to realize is: If you’re exposed, we know that. We’re going to ask questions about what you’re doing to mitigate that exposure," Lenny Jones, a managing director at Moody’s, said in a phone interview. "That’s taken into your credit ratings."

In its report, Moody’s lists six indicators it uses "to assess the exposure and overall susceptibility of U.S. states to the physical effects of climate change." They include the share of economic activity that comes from coastal areas, hurricane and extreme-weather damage as a share of the economy, and the share of homes in a flood plain. Based on those overall risks, Texas, Florida, Georgia and Mississippi are among the states most at risk from climate change. Moody’s didn’t identify which cities or municipalities were most exposed.

Why the sudden focus on climate change from ratings agencies, like Moody’s. Because, as is almost always the case, they only react after the event. In May 2017, Bloomberg reported that when Ocean County (there’s a clue in the name) issued $31m of bonds in 2016, neither Moody’s nor S&P asked any questions about the impact of climate change on its finances. As Bloomberg highlights.

Few parts of the U.S. are as exposed to the threats from climate change as Ocean County, New Jersey. It was here in Seaside Heights that Hurricane Sandy flooded an oceanfront amusement park, leaving an inundated roller coaster as an iconic image of rising sea levels. Scientists say more floods and stronger hurricanes are likely as the planet warms.

It becomes apparent that Moody’s focus on climate change has little to do with being pro-active, rather it’s a response to pressure from investors who, no doubt, remember what happened to many AAA-rated sub-prime mortgage bonds not too many years ago. Indeed, when asked, Moody’s was not ale to recall an example where the credit rating of a city or state had been downgraded for failing to address climate change. Bloomberg continues.

If repeated storms and floods are likely to send property values -- and tax revenue -- sinking while spending on sea walls, storm drains or flood-resistant buildings goes up, investors say bond buyers should be warned.

Jones said Tuesday that the company had been pressured by investors to be more transparent about how it incorporates climate change into the ratings process. Some praised the move, while also urging it to go further.

What are investors’ views on this issue? Bloomberg provides some feedback.

"This kind of publication shoots for municipalities to think harder about disclosure," Adam Stern, a senior vice president at Breckinridge Capital Advisors in Boston, said in an interview. "The action would start to happen when and if you start seeing downgrades."

Eric Glass, a fixed-income portfolio manager at Alliance Bernstein, said real transparency required having a separate category or score for climate risk, rather than mixing it in with other factors like economic diversity and fiscal strength. Still, the new analysis is "certainly a step in the right direction," Glass said by email.

Public administrators are doubtful that anything will change until Moody’s and other ratings agencies show they mean business with actual downgrades.

Others worried that Moody’s is being too optimistic about cities’ desire to adapt to the risks associated with climate change. Shalini Vajjhala, a former Obama administration official who consults with cities on preparing for climate change, says that won’t happen on a large scale until cities start facing consequences for failing to act -- in this case, a ratings downgrade.

"Investors and governments alike are looking for clear market signals to pursue, and perhaps even more importantly, to defend investments in major adaptation and resilience projects to their constituents and taxpayers," Vajjhala, who now runs Re:Focus Partners, said in an email. "Outside of the rating agencies, it is not obvious who else could send a meaningful market-wide signal."

Unfortunately, our suspicion is that, for now, Moody’s focus on climate change risk is driven by the need to be seen saying the right things. We hope the agency “will walk the walk”, rather than merely “talk the talk”, with some downgrades. That would undoubtedly create a response from state and local governments.


Deathrips Thu, 11/30/2017 - 19:34 Permalink

Climate change global warming and the like, is a ploy to take away national sovereignty for their own safety..brought to you by zionists.Fuck the money changers, central banks. cfr and zionist supremacists!Take a look snowflakes. Pollution bad. Carbon dioxide natural counter balance is photosynthesis. If you fucks werent spraying aluminum dioxide in the sky to reflect certain photons..the planet would be just fine through the photosynthetic process. Dane wiggington put it together man.… RIPS

Tarzan Pinto Currency Thu, 11/30/2017 - 21:04 Permalink

If they had threatened downgrading States that are ill prepared for natural disasters, I'd agree, but Climate change, really?As if the climate hasn't always changed.If you go to Cape Cod in the summer and take the boat ride out to see the whales breaching up close, they'll likely explain how the hooked shaped Cape came to be, and why the sea bed is covered in many feet of smooth pebbles, perfect for eels hide in. The Whales. who love eels, go to the bottom with a big breath, stick their mouth into the pebbles and blow a massive amount of air into the pebbles, scaring the eels out of hiding. They gobble them up and then race to the surface for air. It's an incredible sight up close.The pebbles where ground out and left behind by retreating Glaciers. The Cape is the accumulation of rocks and debris at the out edge of the Glacial Ice sheet.By sonar mapping of the sea bed, they've discovered the cape was carved out by three Ice Ages, the last one only about 20,000 years ago, leaving a hook shaped heap of debris 200-600 feet deep.My eye's and common sense say they're full of shit.I'm sticking with what I was taught in grade school, the climate has always changed, and another Ice Age will come.The climate doesn't need fixing!Real man made global warming is called fire and brimstone, our overdue recompense, no carbon tax will stop that.....

In reply to by Pinto Currency

JRobby Government nee… Thu, 11/30/2017 - 19:49 Permalink

So Moody's (and S&P) give AAA ratings to MBS' loaded with sub prime.Now they threaten to down grade credit ratings if a governmental entity doesn't either raise taxes and or issue more debt in order to prepare for global warming.These rating agencies are still valid why? They do not serve a public benefit. They are just another conduit of bribey and corruption.They got up in front of CONgress and said theor ratings on the MBS' were only "opinions". So is this another form of Moody's & S&P's "opinions"??????

In reply to by Government nee…

buzzsaw99 Thu, 11/30/2017 - 19:34 Permalink

they really jumped the shark this time.  moody's is a criminal organization with ties to lloyd blankfein, jamie dimon, warren buffett, etc..  they are liars and con men.  their ratings mean nothing.  they would stamp a ham sandwich AAA if lloyd told them to.

FoggyWorld I Write Code Thu, 11/30/2017 - 20:15 Permalink

Not now for many areas where new houses and old ones hit by storms are 12' and up off the ground.  Our house was built to Outer Banks NC building codes though it is on a Bay in NJ and we got through Sandy just exactly the way the house was designed to weather a storm.But Puerto Rico apparently didn't have to build even their electrical system to modern standards and as a result of that and very weak building codes that island has been demolished.  Notice how Florida which had to rebuild after Andrew early this century did not have the problems that PR or unprepared houses in Houston had.

In reply to by I Write Code

LetThemEatRand Thu, 11/30/2017 - 19:40 Permalink

"However, it was by far the costliest hurricane season on record, with a preliminary total of $368.7 billion in damages"Wow, that's a big number until you compare it to former Goldman Sach's CEO turned Treasury Secretary Paulson's decision to earmark $750B for TARP, because it "seemed about right."  And then there was the additional $75B per month for several years to "fix" the banking system.  Bankers and natural disasters also have in common that they are too big to jail.Bankers -- worse than several natural disasters put togetherTM.

Lost in translation Thu, 11/30/2017 - 19:40 Permalink

Anyone advancing the “climate change” agenda (in reality, merely a rebranding of the discredited “global warming” religion,) is either A) a New Age whack-job, or B) attempting to usurp political and economic control from someone else.

nmewn Lost in translation Thu, 11/30/2017 - 19:48 Permalink

I'm gonna have to go with B on that one...they are all broken window fallacy, Martian-invasion-so-grab-a-shovel-and-fix-it-you-fucking-serfs, fiscally misappropriating, central planning, Keynesian, crony assholes and...the sooner they are all strung up by their heels over hot coals and made to confess to their crimes the better off the world will be and we can get on with living. 

In reply to by Lost in translation

ThrowAwayYourTV Thu, 11/30/2017 - 19:39 Permalink

Theres no doubt climate change is real. All you have to do it look around. I took a picture the other day of a dandelion that just bloomed in my yard the other day. Problem is it was Nov 26th.The question is, is it man made or natural. Either way, global warming is happening, no doubt about it.By the way. Its Nov 30th and I may have to cut my lawn again. Problem is, I live in New Hampshire. 

Lost in translation ThrowAwayYourTV Thu, 11/30/2017 - 19:49 Permalink

From my youth I’ve understood that the One World cultists make legal cases uniformly characterized by “the missing alternative.”

For example, the choice we’re presented with is, “are humans and human societies causing climate change?” vs. “is the climate changing on its own, naturally?”

NEVER, EVER DISCUSSED is the possibility, “is solar radiation management/geoengineering causing our weather patterns to change?”

If an environmentalist or climate change disciple is not willing to have an honest conversation about geoengineering, FADE THEM.

Here in L.A., the jets come out to spray, th sky turns into a hazy, aluminum-colored soup, and presto! Temperatures go UP.

The planes disappear for a week, and presto! Temperatures fall, precipitation returns.

In reply to by ThrowAwayYourTV

gcjohns1971 ThrowAwayYourTV Thu, 11/30/2017 - 20:01 Permalink

I live in North Carolina.Normal temperature is 75 day and 55 night, for this time of year.Its been 55-65 day and 29-39 night all month long.But I get to see them say, day after day that the current temp is 55 at 2pm , and the daily high will be 77... at 2PM.   And then the next day the 'historical' records say we hit 77 at 2PM, except it never got to 65.The only thing that is real is your utter and complete gullibility or insanity.  Take your pick.

In reply to by ThrowAwayYourTV

nmewn gcjohns1971 Thu, 11/30/2017 - 20:31 Permalink

Yeah, they're doing the same bullshit down here. "Its going to brutal out there folks! We're going to zoom up today from our current low of FORTY ONE DEGREES and top out near eighty degrees until the weekend when a cold front will give us some much needed relief." I'm are you even talking about? North Florida has forty degree swings per day every year at this time and you can keep that "cold front" bullshit somewhere north of here.I wish it were eighty year round ;-)

In reply to by gcjohns1971

falconflight gcjohns1971 Thu, 11/30/2017 - 21:17 Permalink

I live in North Carolina (Appalachia).  Normal Temperature is 58 day time and 37 at night, for this time of year.It's been 53 to 63 for the past couple of weeks, we're still harvesting vegetables...with the help of sheets and a small greenhouse.  Our local airport has officially recorded almost every overnight low below 32, with three nights in the low 20's. Several degrees on average warmer at the ole homestead. Thankfully, Russia is experiencing that meandering river of air (Jet Stream) dipping into the heart of their nation at the present.   @throwawayyourtv must still be glued to ABC/NPR/PMSNBC

In reply to by gcjohns1971

. . . _ _ _ . . . ThrowAwayYourTV Thu, 11/30/2017 - 20:42 Permalink

Climate change isn't real just because a flower popped up on your lawn. How can anyone in 2017 think that the example of one local event proves a process that supposedly takes decades/centuries to manifest on a global scale? Where I live, it hasn't snowed this early in years... but that doesn't PROVE anything either.Glaciers have been retreating all over the world for over a century now. It certainly wasn't caused by CO2, and it has more to do with the sun than anything else. It isn't man's doing, that's for sure. But it has been happening, and it is undeniable. It's also quite normal that when we come out of an ice age, warming trends increase. Geo-engineering certainly can't be held to account for any of these long-term effects.AGW is a myth, no doubt. The rest changes all the time. Long-term predictions one way or the other are impossible.

In reply to by ThrowAwayYourTV

jin187 . . . _ _ _ . . . Thu, 11/30/2017 - 21:38 Permalink

The thing is that whether it's our doing or not, libtards still want us to "fix it". We're supposed to combat global warming, when we aren't even really sure whether it's warming, whether it's our fault, and what the target temperature we should be aiming for is.

Let's say we do spend the ridiculous amount of money to transform into a no-growth, no-carbon society. Plant a tree every 10 feet, pump the atmosphere full of reflective particles, cut CO2 emissions to nothing, etc. What happens then? You won't hear about it from the libtards, but the climate models showing what would happen if we artificially cooled the planet are even more catastrophic than the failed global warming models.

One good thing is that if we do plant tons of extra trees, at least we'll have plenty of logs to use for pikes to put climate "scientist" heads on when they destroy the planet.

In reply to by . . . _ _ _ . . .

falconflight . . . _ _ _ . . . Thu, 11/30/2017 - 21:04 Permalink"Russia is enduring its harshest winter in over 70 years, with temperatures plunging as low as -50 degrees Celsius. Dozens of people have already died, and almost 150 have been hospitalized.The country has not witnessed such a long cold spell since 1938, meteorologists said, with temperatures 10 to 15 degrees lower than the seasonal norm all over Russia." That oral fixation of yours is telling.  Glory Hole Much?

In reply to by . . . _ _ _ . . .