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How Does Climate Affect Credit?

VOA News

   The primary impacts of climate change are obvious, from the
   unprecedented fires in Australia to the melting ice caps in the Arctic.
   However more observers are starting to consider secondary impacts, and
   none is less obvious perhaps than the credit worthiness of governments,
   which is analyzed in a new report from Moody's, a ratings company.

   A diverse mix of nations including Vietnam, Suriname, Egypt, and the
   Bahamas are most vulnerable to a rise in sea levels, according to the
   report released last week. It said rising seas may cause "lost income,
   damage to assets, loss of life, health issues, and forced migration,"
   which could hurt governments' sovereign ratings.

   The report was released ahead of this week's Davos forum, an annual
   meeting of world business and government officials to discuss the
   world's problems. Past themes at Davos include populism and
   globalization. The theme is climate change at this year's Alpine forum,
   where climate activist Greta Thunberg and U.S. President Donald Trump
   have clashed on the issue's impact on business. The irony is not lost
   on observers that officials are getting to the forum by air travel, a
   key source of climate-changing emissions, in order to discuss climate
   change. Not often represented at the forum are the vulnerable nations
   named in the Moody's report.

   "Vulnerability to extreme events related to sea level rise can also
   undermine investment and heighten susceptibility to event risk, by
   hindering the ability of governments to borrow to rebuild, increasing
   losses for banks, raising external pressures, and/or amplifying
   political risk as populations come under stress," said Anushka Shah,
   Moody's vice president and senior analyst, in the report. "While one
   isolated shock related to sea level rise is unlikely to materially
   weaken a sovereign's credit profile, repeated shocks could do."

   Her report, with contributions from Caleb Coppersmith and Natasha
   Brereton-Fukui, explained the link between climate and credit.

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