What about credit rating agencies as a market actor to inspire climate resilience? Already, the 11 recommendations by the Task Force on Climate-Related Financial Disclosure \u2013 sorted into Governance, Strategy, Risk Management and Metrics\/Targets \u2013 are sinking into the market.\u00a0 Many are turning to the credit rating agencies and asking them if they are even looking for information on climate risk and what they\u2019re doing with any they find.<\/p>\n
As I reported in late 2016 in a Triple Pundit article, \u201cLaurels for Credit Rating Agencies, Levers of Change in the Adaptation Market<\/a>,\u201d the rating agencies have been exploring this subject for several years.\u00a0 Last November, Moody\u2019s Investors Service explained how it incorporates climate change into its credit ratings for state and local bonds. It said that cities and states are at greater risk of default if they don\u2019t deal with risks from rising seas or strong storms.<\/p>\n So, what specifically should we expect from the rating agencies?\u00a0 I recently participated in a Brookings Institute panel with Standard and Poor\u2019s Managing Director Kurt Forsgren, who said that the S&P will increasingly consider climate change in its rating analysis.<\/p>\n Climate change risk and credit rating agency assessment<\/p>\n Today, in factoring climate change risk into municipal ratings, the rating services focus primarily on management effectiveness and planning that includes climate change risk. This is especially true in sectors with distinct climate risks that apply to their assets or revenue sources (such as water and electric utilities).\u00a0 They often perform a qualitative assessment of the climate change risk when detailed information is lacking.<\/p>\n In addition to risk, they assess municipal resilience that looks for:<\/p>\n Evidence from Utility Districts<\/p>\n But, in reality, what are they seeking? For instance, S&P analysis for corporate ratings indicates that natural catastrophes lead to a one-notch downgrade 40 percent of the time. We know that the Municipal Utility District (MUD) ratings in and around Houston did not take a near-term hit in S&P\u2019s assessments immediately following Hurricane Harvey, although the agency notes that it does \u201cnot preclude longer-term [rating] challenges for Hurricane []- affected [] MUDs.\u201d<\/p>\n S & P\u2019s specific comments for the MUDs are instructive for all build projects, planned or in place: \u201cS&P Global Ratings believes the largest potential long-term rating impact to MUDs would be caused by a decline in the district\u2019s assessed values, which support not only operational revenue but also the district\u2019s ability to pay its debt burden, which is a primary driver for our MUD ratings.\u201d<\/p>\n It added: \u201cMUDs with comparatively higher tax rates may face some practical taxing limitations as affected areas adjust their tax rates to compensate for declines in assessed values.\u201d<\/p>\n Although S&P believes the robust reserves of most MUDs will insulate them from rating downgrades, the impacts they expect from climate disruption are pretty clear here. Credit rating agencies see the physical impacts of climate change as material to the financial system. The larger the shock event, the longer and deeper the impact on credit quality,\u00a0especially<\/em>\u00a0for those with poor credit quality before the event.<\/p>\n This is a major reminder about the importance of resilience.\u00a0 Communities struggling with poor credit quality will find it doubly difficult to borrow at favorable rates as the impact of climate change continues to grow \u2013 further exacerbating both market and social inequities.<\/p>\n Resilience Likely Helps<\/strong><\/p>\n It seems we have the market signal we\u2019ve been waiting for in the climate action community. This is a call to arms for all resilience brokers to build security, stability and sustainability in lower-resourced communities.<\/p>\n The key actions:<\/p>\n References<\/strong><\/p>\n S&P Global \u201cNear-Term Rating Stability Does Not Preclude Longer-Term Challenges for Hurricane Harvey-Affected Texas MUDs\u201d 5 September 2017.\u00a0https:\/\/www.spglobal.com\/our-insights\/Near-Term-Rating-Stability-Does-Not-Preclude-Longer-Term-Challenges-for-Hurricane-Harvey-Affected-Texas-MUDs.html<\/p>\n S&P Global \u201cHow Long \u2018Til We Get There? Major Post-Hurricane Recoveries in Recent Years.\u201d 7 September 2017.\u00a0https:\/\/www.spglobal.com\/our-insights\/How-Long-Til-We-Get-There-Major-Post-Hurricane-Recoveries-In-Recent-Years.html<\/p>\n S&P Ratings Direct, \u201cClimate Change Will Likely Test The Resilience Of Corporates\u2019 Creditworthiness To Natural Catastrophes\u201d, 20 April 2015.\u2028\u00a0http:\/\/www.actuarialpost.co.uk\/downloads\/cat_1\/SP_Climate%20Change%20Impact%20On%20Corporates_Apr212014.pdf<\/p>\n What about credit rating agencies as a market actor to inspire climate resilience? Already, the 11 recommendations by the Task Force on Climate-Related Financial Disclosure \u2013 sorted into Governance, Strategy, Risk Management and Metrics\/Targets \u2013 are sinking into the market.\u00a0 Many are turning to the credit rating agencies and asking them if they are even […]<\/p>\n","protected":false},"author":10,"featured_media":2001,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[22,161],"tags":[],"class_list":["post-1994","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-adaptation","category-finance"],"_links":{"self":[{"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/posts\/1994","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/comments?post=1994"}],"version-history":[{"count":2,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/posts\/1994\/revisions"}],"predecessor-version":[{"id":2006,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/posts\/1994\/revisions\/2006"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/media\/2001"}],"wp:attachment":[{"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/media?parent=1994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/categories?post=1994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/in4c.net\/wp-json\/wp\/v2\/tags?post=1994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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Blog originally appeared on Triple Pundit<\/a>\u00a0<\/em><\/span><\/h4>\n<\/span>","protected":false},"excerpt":{"rendered":"