Lenders are increasingly looking at climate change as risky business
Lending — so central to people buying homes and governments building infrastructure — boils down to one question. How sure is the lender that it'll get its money back, with interest?
The risks associated with climate change have begun to weigh on that calculus.
Lenders are increasingly looking at climate change as a risk factor, according to university researchers and the financial services company Moody's.
Banks have been ridding themselves of mortgages on homes threatened by natural disaster by selling them to the federal government, according to researchers at Johns Hopkins University and HEC Montreal.
Natural disasters can leave financial havoc in their wake — after Harvey, many homeowners walked away from their homes because they could not afford repairs on top of their mortgages. The rush by banks to sell mortgages to the federal government after natural disasters implies they recognize the risk of default and are transferring that risk to the government. Researchers called the dynamic a "potential threat to the stability of financial institutions."
In addition, a growing number of municipal bond analysts are concerned about climate change. Only one percent of analysts believe cities issuing bonds to raise money for projects are prepared for the impact of climate change, according to a survey by credit analytics company Smith's Research and Gradings.
Moody's has downgraded city credit ratings in the aftermath of disasters -- New Orlean's credit rating after Hurricane Katrina is an example -- and has stated that it is looking at what cities with a high risk of hurricanes and other disasters are doing to prepare when assigning credit ratings. Two months ago, Moody's bought a majority stake in climate-risk data firm Four Twenty Seven. A lower credit rating can make it more costly to borrow money.