Portugal wildfires
Firefighters battle a forest fire outside the village of Vilarinho, near Coimbra in central Portugal Pablo Blazquez Dominguez/Getty Images

European cities are increasingly exposed to physical risks stemming from climate change shocks and trends that will test their ability to adapt and may weaken their credit strength, according to a new report.

In a note to its clients, ratings agency Moody's opined that the range of climate challenges faced by European cities is broad: Rising sea levels and increasingly frequent river floods will affect some cities, while others will experience more heatwaves, drought and wildfires, creating new challenges for city governments.

"From coastal flooding in northern Europe to water scarcity in the south, changing climate patterns have the potential to alter cities' economic profiles and financial strength," said Mauro Crisafulli, associate managing director at Moody's and co-author of the report.

"Climate risks will manifest themselves through both gradual trends and acute shocks for cities across the continent, not only disrupting economic activity, but also causing damage to property and infrastructure."

With nearly three-quarters of Europe's population living in cities, municipal authorities will play an active part, along with national governments, in responding to climate challenges and planning for future changes that may alter the physical and economic landscape of urban areas, Moody's added.

Industry surveys suggest that awareness about the issue is high among European city administrations, and that, to varying degrees, authorities are taking steps to develop long-term plans and to put money aside to respond to the threat.