Investors Need Better Information On Municipal Climate Risks

Cities across the country are facing a stark increase in extreme weather events.

From hurricanes to wildfires, the U.S. has endured 403 billion-dollar climate and weather disasters since 1980—leaving behind a trail of destruction that’s cost the country more than $2.9 trillion. Earlier this year, the Los Angeles fires killed dozens of people and caused more than $250 billion in damages.

The loss of life and property from this fire is a harsh wake-up call for states and local governments, which are often called the first responders to these weather disasters. Yet, current disclosure of these risks in the $4 trillion municipal bond market remains inconsistent and inadequate. As a result, investors lack the information needed to make informed investment choices.

Nowhere is this gap clearer than in the recent Los Angeles Water and Power municipal bonds credit rating downgrades. This downgrade represents a fundamental shift in how the market assesses the risks and opportunities in the municipal bond market. For investors and municipal bond issuers alike, the message is clear: climate transparency is no longer optional, it’s the price of admission to capital markets.

Ceres most recent report, Leading with Transparency A Guide to Strengthening Climate Disclosure and Resilience in the Municipal Bond Market, outlines how public sector organizations, investors, and other market participants can integrate resilience planning with climate risks disclosure — a strategy that simultaneously preserves capital market access to cities and provides transparency to investors.

Layered approach to improving risk transparency

Our report shares a layered approach using best practices from forward thinking municipalities to improve municipal bond disclosure and ensure that cities can continue to access the capital necessary to build resilient communities.

1. First, municipalities should enhance their financial statements to address material climate risks. Seattle City Light leads in this area, explicitly acknowledging in its 2023 Audited Financial Statements how its hydroelectric generation depends on snowpack and rainfall patterns affected by climate change. Similarly, Sonoma County Water Agency candidly discusses how extreme weather patterns impacted its water delivery and operations.
   
2. Second, all bond issuers should work with counsel to develop Official Statements that systematically disclose climate risks and resilience measures. Miami-Dade County’s 2024 Water Revenue Bonds Official Statementexemplifies this approach, detailing specific adaptation initiatives and their Sea Level Rise Strategy. Boston’s 2023 General Obligation bond disclosure similarly provides investors with transparent assessments of coastal flooding risks and adaptation investments.
   
3. Third, larger issuers should publish standalone climate resilience reports aligned with established frameworks. DC Water’s comprehensive ESG Report follows the Task Force on Climate-related Financial Disclosures structure. The report details governance approaches, specific risks, adaptation strategies, and performance metrics.

For investors, this disclosure provides essential information to evaluate long-term risk. For issuers, it maintains market access while building organizational resilience. And for communities nationwide, it helps ensure the continued flow of capital needed to adapt to our changing climate.

Climate transparency in municipal bonds isn’t just good disclosure practice. It’s an imperative for our shared future.