At a rally in Manila last month, protesters display
placards and crosses bearing the names of casualties of
Typhoon Haiyan, which struck central Philippines six months
ago. Photo by Reuters.
Climate change, and specifically global warming, will be
the second global mega-trend to affect sovereign credit risk
through the rest of the century, Standard and Poor's says.
In a new report, the rating agency said alongside the effects
on societies of their ageing populations, the impact of
climate change, specifically global warming, would put
downward pressure on sovereign ratings.
In the ranking, all the 20 most vulnerable nations were
emerging markets and many of them were in Asia-Pacific.
Vietnam, Bangladesh, Fiji, the Philippines, Papua New Guinea
and Indonesia were among the list of nations in the bottom 10
Their vulnerability was in part due to their reliance on
agricultural production and employment - which could be
vulnerable to shifting climate patterns and extreme weather
events - but also due to their weaker capacity to absorb the
financial cost, report author Moritz Kraemer and S&P's
chief sovereign credit risk officer said.
Key points from the report included climate change being one
of the global mega-trends to affect sovereign
creditworthiness, in most cases negatively.
The impact on creditworthiness would probably be felt through
various channels, including economic growth, external
performance and public finances.
''Sovereigns will probably be unevenly affected by climate
change, with poorer and lower rated sovereigns typically
hardest hit, which could contribute to rising global rating
The report said extreme weather events, such as tropical
storms or floods, seemed to have been on the rise since the
Data collected by MunichRe, a reinsurer, suggested
weather-related loss events had risen in all continents, but
most significantly in Asia and North America where they had
increased more than fourfold.
In Eastern Asia, overall losses - insured and non-insured -
used to be below $US10 billion ($NZ11.6 billion) a year but
had regularly surpassed $US20 billion during the past decade,
with a peak of more than $US50 billion, Mr Kraemer said.
''Typhoon Haiyan hitting the Philippines in November 2013 has
been a powerful and hugely destructive reminder of this
Typhoon Haiyan killed more than 6200 people and left tens of
thousands homeless when it struck.
So far, S&P had not revised the rating of a sovereign as
a consequence of an extreme weather event.
''We have taken the view that the size of the devastation,
while large in absolute terms, has not been sufficient to
impact a rating overall. However, assuming that extreme
weather events are on the rise in terms of frequency and
destruction, how this trend could feed through to our ratings
on sovereign states bears consideration,'' Mr Kraemer said.
To measure the degree to which economies were exposed to the
risks, S&P had created a composite of three different
variables and arrived at a vulnerability ranking for the 116
sovereigns it rated.
The three variables were: share of the population living in
coastal areas below 5m of altitude; share of agriculture in
national GDP; the vulnerability index compiled by Notre Dame
University Global Adaptation Index which measured the degree
to which a system was susceptible to, and unable to cope
with, adverse effects of climate change.
In the ranking, Luxembourg, Switzerland and Austria were at
the top of the least-vulnerable list.
Credit risk from climate change
Vietnam, Bangladesh, Fiji, Philippines, Papua New Guinea and
Indonesia among nations in the bottom 10 places.
Luxembourg, Switzerland and Austria.