How Does Climate Change Affect Sovereign Credit Ratings?

Which one would you rather face – credit risk or climate risk?

Well… Seems like we’re likely to face BOTH in tandem soon.

As per a Cambridge University study, climate change is going to drive an increase in sovereign debts and consequently an increase in credit risk.

This means countries which have lower coping mechanisms to deal with climate-related risks run the risk of making themselves less suitable candidates as borrowers. It will impact their debt recovery and serviceability which will, in turn, impact economies adversely.

Credit rating agencies, therefore, are now tasked with the responsibility to factor climate risk in their profile assessment.

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