A global failure to curb carbon emissions will lead to rising debt-servicing costs for 59 nations within the next decade, according to a study that simulated the economic impact of climate change on current sovereign credit ratings.
Rising debt costs would be just one extra facet of the overall economic damage which climate change is already causing. Insurance giant Allianz estimates that recent heatwaves will already have shaved 0.6 per cent points off global output this year. A downgrade to 59 sovereigns emerged from a so-called RCP 8.5 scenario of emissions that keep rising. By comparison, 48 sovereigns experienced downgrades between January 2020 and February 2021 during the turmoil of the COVID-19 pandemic.
While developing nations with lower credit scores are seen hit hardest by the physical effects of climate change, nations with the highest ranking credit scores were likely to face more severe downgrades simply because they have furthest to fall.The findings come as regulators around the world seek to better understand just how much damage to economies and the global financial system to expect from climate change.