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Creditors Start Asking Coastal Cities For Their Climate Plans

July 17, 2019, 8:46 PM

Financial credit rating institutions want answers from coastal cities about how they’re preparing for climate-change impacts like sea level rise and whether they can pay for their adaptation plans, the mayor of Honolulu said July 17.

Mayor Kirk Caldwell (D), who has been leading Hawaii’s capital city since 2013, said he was asked for the first time by credit raters like Moody’s Corp. and Fitch Ratings Inc. during recent presentations in San Francisco on municipal bonds about how the city is addressing climate change impacts.

His remarks, during the first hearing of the ad hoc Democratic Senate Committee on the Climate Crisis, underscores the attention financial institutions are increasingly paying to climate change risk.

For example, Moody’s Analytics in a June report found climate change impacts such as rising temperatures, intensifying extreme weather events, and sea level rise would disrupt communities, threaten infrastructure, and hurt economic productivity.

“They sit there and then look like investment banker type guys, and they’re just concerned about, ‘We’re issuing bonds. We’re rating your bonds. And are you going to be able to pay them back given what’s occurring in your city?’” Caldwell told Democratic senators of his recent presentation.

Caldwell, in an exchange with Sen. Sheldon Whitehouse (D-R.I.), said he isn’t the only mayor being asked those questions. Mayors in Miami, Miami Beach, and Dade County, Fla., have told him credit raters are asking them how they’re addressing sea level rise, he said.

“It’s going to affect their bond rating unless they show what they’re doing but also how do they pay for it,” Caldwell added.

Insurers’ Response

But at the same time, even as financial institutions are raising concern about climate change impacts, they aren’t all pushing strongly for policy action to reduce greenhouse gas emissions, Caldwell said. He pointed to insurance companies in particular.

“They have reinsurance,” Whitehouse said in response.

Caldwell added that insurance companies are “the old model” and haven’t changed their ways “even though it would save their money.”

But Whitehouse told Bloomberg Environment that arming insurance companies with better information about what corporations are doing to address climate impacts and what risks corporations face could open the door to insurers being more vocal on the issue.

“The key thing for us to do baseline is to make sure that investors—and insurance companies are big investors—have the information they need to price climate risk,” Whitehouse said in an interview following the hearing. “At the moment, a lot of investment is taking place blind to climate risk, because it’s badly reported and the requirements are very weak.”

Disclosing Climate Risk

Whitehouse pointed to his legislation (S. 2075) with Sen. Elizabeth Warren (D-Mass.) that would require publicly traded companies to report the risks they face from climate change.

The House version of that bill, H.R. 3623 from Rep. Sean Casten (D-Ill.), was approved by the House Financial Services Committee on July 16.

Whitehouse said it is possible Republicans could support stronger disclosure requirements, too. But no Republicans currently cosponsor the bill.

“There’s nothing that is ideologically abhorrent in conservative doctrine to investors having good information to make appropriate market decisions on,” Whitehouse said. “So the question is really how much the fossil fuel industry leans in to try to misrepresent what we’re doing and to make this basically a sort of loyalty test.”

To contact the reporter on this story: Abby Smith in Washington at asmith@bloombergenvironment.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Chuck McCutcheon at cmccutcheon@bloombergenvironment.com

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