Poor nations face four times more climate change risk, S&P warns

POORER COUNTRIES’ economies will be four times more exposed to climate risks than richer peers by 2050, according to an S&P Global Ratings analysis.

Around 12% of low to lower middle-income nations’ economic output will be under threat, compared with 3% for high and upper middle-income states, the ratings agency said in a report based on a “moderate” scenario. South Asia is particularly at risk — 10 times more so than Europe — due to its exposure to storms, floods and rising sea levels.

Countries located around the equator and small island states, typically more exposed to physical climate risks, also tend to have poorer, less diversified economies and weaker institutions. That means their economic losses are likely to be higher and more persistent given they have less capacity to adapt, S&P found.

“Climate finance is needed to help build resilience of developing countries to climate change to which they have contributed relatively little,” said authors including Marion Amiot. “International cooperation and support can help the most vulnerable countries to finance a rising adaptation gap.”

Bond markets have already been adapting to the threat of climate change, with borrowers issuing record volumes of green bonds and investors often paying a so-called “greenium” in the rush to grab them. Progress has been slower in quantifying the climate risks for individual nations, and in any case models may be of limited use given many sovereign bonds won’t mature for decades.

S&P does not consider this analysis as part of its base case for sovereign ratings, citing the uncertainty of the projections. The S&P analysis does not assess so-called transition risks, which refer to the economic costs of moving toward a greener economy, or associated governments and communities’ adaptation efforts.

“It’s quite difficult to quantify the impacts of adaptation methods currently,” said Paul Munday, primary analyst on the report. “That being said, it is reasonable to assume countries will try to adapt to issues such as rising sea levels.”

The study is mainly based on a scenario that projects an average temperature increase of 1.8°C, versus the Paris Agreement’s aim of limiting a temperature rise to “well below” 2°C. — Bloomberg