(Mis)calculated Risk and Climate Change Are Rating Agencies Repeating Credit Crisis Mistakes?

The report examines the systemic risk posed by credit rating agencies' failure to account for climate change in their methodologies. It argues that by assuming a 'business-as-usual' scenario of $\ge 4^{\circ}C$ warming rather than a dynamic trajectory aligned with a $2^{\circ}C$ goal, agencies are artificially inflating the credit ratings of fossil fuel projects. Using a case study of the Adani Abbot Point Terminal in Australia, the document demonstrates how generic project finance methodologies ignore risks such as stranded assets, decreased coal demand, and physical climate impacts. The report concludes that this failure not only threatens global financial stability by creating a 'carbon bubble' but also exposes rating agencies to significant legal liability under the Dodd-Frank Act and common law.

• A shift toward a $2^{\circ}C$ climate scenario creates two primary financial risks: physical climate impact risks (e.g., sea-level rise and extreme weather) and carbon-constrained demand risks, which can lead to a 'carbon bubble' and stranded assets.
• Under a $2^{\circ}C$ scenario, a vast majority of proven fossil fuel reserves cannot be consumed; specifically, it is estimated that 82% of known coal reserves must remain unused, and over 90% of reserves in the US, Russia, and Australia cannot be used.
• Rating agencies' standard credit rating horizon of 3–5 years is insufficient for long-term infrastructure projects, as it fails to capture climate risks that manifest over longer periods, mirroring failures seen during the sub-prime mortgage crisis.
• The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 increases the legal risk for rating agencies by requiring effective internal control structures and greater disclosure of the assumptions and limitations used in credit ratings.
• Rating agencies face potential civil liability under US law if they 'knowingly or recklessly' fail to conduct reasonable investigations of the factual elements relied upon by their methodologies, particularly if they rely solely on scenarios provided by the debt issuer.

APA

Center for International Environmental Law (2015). (Mis)calculated Risk and Climate Change Are Rating Agencies Repeating Credit Crisis Mistakes? https://www.ciel.org/wp-content/uploads/2015/06/CIEL_CRA_Brief_24Jun2015.pdf

Chicago

Center for International Environmental Law. (Mis)calculated Risk and Climate Change Are Rating Agencies Repeating Credit Crisis Mistakes? 2015. https://www.ciel.org/wp-content/uploads/2015/06/CIEL_CRA_Brief_24Jun2015.pdf.

Wikipedia

{{cite report |author=Center for International Environmental Law |title=(Mis)calculated Risk and Climate Change Are Rating Agencies Repeating Credit Crisis Mistakes? |date=May 2015 |url=https://www.ciel.org/wp-content/uploads/2015/06/CIEL_CRA_Brief_24Jun2015.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{centerforinternationalenvironmentallaw2015miscalculated, author = {{Center for International Environmental Law}}, title = {{(Mis)calculated Risk and Climate Change Are Rating Agencies Repeating Credit Crisis Mistakes?}}, institution = {Center for International Environmental Law}, year = {2015}, month = may, url = {https://www.ciel.org/wp-content/uploads/2015/06/CIEL_CRA_Brief_24Jun2015.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }