Climate Change To Have Impact On Credit Risk Ratings

While climate change skepticism continues to exist, some of the physical effects of the phenomenon, notably climate shocks, are rarely in question and have a profound impact on economies. Consequently, ratings agencies such as Moody’s have had to address climate change in their sovereign ratings. It’s never been clear how exactly they do it. It’s perhaps why Moody’s issued an explanatory note on how it measures climate change impact.

In the Nov. 7 note, Moody’s said its sovereign bond rating methodology does not explicitly account for credit risks posed by climate change. But that is not say the climate risks are not assessed at all. In fact, they are captured by four existing risk parameters: economic strength, fiscal strength,...