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S&P: Vulnerability to Climate Change Will Impact a Nation's Credit

May 16, 2014 11:35 AM EDT

How vulnerable a nation is to climate change will severely influence its international credit score, the Standard & Poor's (S&P) Rating Service reports.

The S&P says that how well a sovereign state can endure the effects of climate change can directly impact that nation's creditworthiness, Reuters reported.

Aging population and climate change have both been rated as factors that can hugely influence a nation's economy in the approaching years, the S&P reports, and climate change in particular can hurt the rating of countries that otherwise would have good scores.

"Unlike in the case of aging, individual societies cannot by themselves meaningfully reduce the impact they will feel as the climate changes," the analysts said. "A society may choose to reduce its carbon emissions unilaterally to reduce the risk of the potential consequences of global warming, but due to the global character most of the benefits of that society's sacrifice will accrue to other nations."

The report highlights that climate change is becoming one of the global "mega-trends" impacting sovereign creditworthiness, and this added consideration will negatively affect most nations. This influence on creditworthiness will likely affect the self-sustainability of nations as well as their international activity.

The report also notes that sovereigns will probably be unevenly affected by climate change, with poorer and lower rated sovereigns typically hit hardest - broadening the global inequality gap between low- and high-income nations.

S&P analysts ranked nations' vulnerability to climate change after considering their dependence on at-risk agriculture, and their ability to adapt to changing climate conditions and recover from natural disaster damage.

Natural disaster damage has not been considered in past analyses, but, "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," S&P analysts wrote.

Some information from: [Reuters] [Bloomberg]

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