The sovereign credit rating of 59 countries, including the United States, China, India, and Canada could be downgraded in the next decade without significant emissions reductions, according to a study by the University of East Anglia (UEA) and the University of Cambridge. The researchers simulated the impact of climate change on sovereign credit ratings for 108 countries, creating the world’s first “climate-adjusted” ratings system, and found deferring green investments now will lead to higher borrowing costs in the future resulting in higher corporate debt.
Furthermore, the researchers found current finance indicators such as Environmental, Social, and Governance (ESG) ratings and corporate disclosures do not provide adequate insight into how climate change affects material risk since most do not have scientific underpinning.
“Ratings agencies took a reputational hit for failing to anticipate the 2008 financial crisis. It is imperative that they are proactive in reflecting the much larger consequences of climate change now,” researcher Patrycja Klusak told the Economic Times.
While smaller nations, many with lower credit scores, are likely to bear the most direct losses and damages of global warming, it was nations with strong credit ratings that would face more severe downgrades. The United States’ credit score, for example, could fall two notches potentially costing the U.S. Treasury (and thus American taxpayers) hundreds of billions of dollars. “There are no winners,” Klusak added. (Reuters $, Economic Times $)