Climate Risk and Credit Ratings
53 Pages Posted: 23 Oct 2020 Last revised: 30 May 2023
Date Written: October 9, 2020
Abstract
We find weak evidence suggesting that cities’ credit ratings reflect their climate risk exposures. Using a large sample of U.S. cities, we test whether cities with higher exposures to physical or transition risks of climate change have lower credit ratings. We also compare the ratings of coastal and similar noncoastal cities, and run difference-in-differences tests around events that raise climate change awareness. Moreover, we study the climate-risk effect within cities and at the bond-level. We observe a negative association between one of the climate risk proxies and ratings in one of the tests, which is driven by a single city.
Keywords: Climate Risk; Climate Change; Global Warming; Credit Ratings; Credit Rating Agencies; Cities; Municipalities; Cost of Capital; Sea Level Rise; Floods; Wildfires
JEL Classification: G24, G12, G18, Q54, Q52, Q58
Suggested Citation: Suggested Citation