Climate change and municipal bonds across scales: credit ratings and the challenges of emergent risk in small localities

In recent years, credit ratings agencies have formally included metrics of climate and disaster risk in their municipal bond assessments. Although municipal bond ratings are a critically important element of local government finance with the power to motivate environmental and non-environmental policy, their entanglements with emergent climate and disaster risk, as well as responsive decision-making, are understudied. To better understand the potential implications of climate risk inclusions and to complement efforts focused on large cities, this exploratory effort places a new methodology through which Moody’s – one of the three primary ratings agencies – embeds climate and risk and resilience in their ordinal ratings categories into conversation with literatures on municipal finance, decision-making and bond ratings. By comparing the ratings treatment of Miami, a vulnerable but large and well-resourced municipality, with three smaller, less affluent bond issuers, it highlights some spatially uneven risks arising from ratings inclusions. Critically, it emphasises the internal diversity of bonds and issuers, a tension between long-term preventative investment to support resilience and adaptation and short-term crisis response, as well as several other ways that these factors may differentially impact local financial and environmental policy in smaller, less well-resourced municipalities that fly under the analytical radar.