Climate change threatens sovereign credit ratings warns S&P
Countries in the Caribbean and Southeast Asia risk credit downgrades because of climate change, according to analysis from one of the world’s biggest credit ratings agencies Standard and Poor’s (S&P), reports Acclimatise.
“We expect the significance of the climate change mega-trend in assessing sovereign risk to only increase over coming decades,” said S&P credit analyst, Marko Mrsnik “as evidence of the economic implications of climate change and extreme weather events becomes ever more concrete, sovereign ratings could gradually become more at risk as well.”
The climate threat to many of the nations in these regions is severe and vulnerable countries could see their ratings affected by as much as 20%. Should such downgrades occur, they would further impair affected country’s ability to adapt to climate change, as the cost of borrowing would rise.
"Our simulations indicate that climate change-related natural hazards can harm sovereign ratings," said Mrsnik, "in terms of average impact of climate change by peril, our simulations show that tropical cyclones and associated storm surges will be more damaging than floods as the earth's temperature rises. Geographically, ratings of sovereigns in the Caribbean and Southeast Asia appear to be most at risk," he added.
S&P predict that the economic cost from climate disasters will continue to increase. They expect vulnerable countries could suffer losses that range from 1.6 % of per capita income in Bermuda to over 8.5% in Thailand.
Without taking action to mitigate and adapt to climate impacts, S&P also warn that climate change will increase government debt. Vietnam can expect an increase of around 4% of GDP, while the Bahamas could suffer a 42% increase.
While vulnerable, developing nations are expected to be most effected it is unlikely that rich countries will escape unscathed. S&P point out that the U.S., New Zealand and Japan will all be badly affected by increased severity of tropical cyclones.
The S&P analysis covered 38 countries and 44 natural disasters, but it did not take into account all of the risks posed by climate change and its impacts. “The actual ratings impact of climate change could, therefore, be larger still” said S&P.