S&P: poor nations face greater risk of climate change

The economies of the poorest countries will be four times more exposed to climate risks than their richest peers by 2050, according to an analysis by S&P Global Ratings.

Some 12% of economic output in low- and lower-middle-income nations will be threatened, compared with 3% in high- and upper-middle-income states, the ratings agency said in a report based on a scenario “moderate”.

South Asia is particularly at risk, 10 times more than Europe, due to its exposure to storms, floods and rising sea levels.

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

“Climate finance is needed to help build the resilience of developing countries to climate change to which they have contributed relatively little,” authors including Marion Amiot wrote. “International cooperation and support can help the most vulnerable countries finance a growing 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 “green cousin” to be the first to get them. Progress has been slower in quantifying climate risks to individual nations, and in any case the models may be of limited use given that many sovereign bonds won’t mature for decades.

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

“Currently, it is quite difficult to quantify the impacts of adaptation methods,” said Paul Mundaylead analyst on the report. “That said, it is reasonable to assume that countries will try to adapt to problems like sea level rise.”

The study is mainly based on a scenario that projects an average temperature rise of 1.8°C, compared to the Paris Agreement goal of limiting a temperature rise to “far below” of 2°C.