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.
Also taken into consideration: "[communities] preparedness for such shocks and their activities in respect of adapting to climate trends," the report says.
"If you have a place that simply throws up its hands in the face of changes to climate trends, then we have to sort of evaluate it on an ongoing basis to see how that abdication of response actually translates to changes in its credit profile," says Michael Wertz, a Moody's vice president.
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.