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Investment banks are increasingly worried about climate change, and this concern is appearing more and more frequently in their municipal bond underwriting documents. In addition to information on lawsuits or revenue issues facing a municipality, the documents include language about climate change, hurricane risks, and rising seas. Bloomberg News recently reported on an analysis of due diligence questionnaires prepared by banks or legal counsels and sent to governments in coastal Florida, as well as official statements for prospective bond investors. About half of the questionnaires and the majority of the statements included language on storm-related risks or climate change.

The report also noted a prediction from BlackRock Inc. that within a decade, more than 15 percent of debt in the Standard & Poor’s National Municipal Bond Index will come from regions that could suffer average annualized losses from climate change of as much as 0.5 percent to 1 percent of their gross domestic product. It concluded, however, that “climate risk isn’t necessarily showing up in muni bond pricing yet – communities that that are more susceptible to these hazards do not seem to have to pay a penalty in the form of higher yields.”


The report appeared in the November 5, 2019 issue of BNA Environment & Energy Report.