Extreme Weather Could Be the Next Big Threat to European Country Ratings
Extreme Weather Could Be the Next Big Threat to European Country Ratings
(Bloomberg) -- Sovereign creditworthiness in Europe could diverge further unless governments in countries more vulnerable to climate change pay more attention to extreme weather risks, according to Scope Ratings.
Costs related to the weather are becoming more material for sovereign risk and this will accelerate as destructive events become increasingly frequent and severe, Scope analysts said in a report. That puts the most exposed countries -- typically in southern Europe -- at risk, especially as they are not spending the most to build resilience.
“The pervasiveness of natural risk could thus lead to greater rating divergence given that the countries which are most exposed to natural risks -- such as Turkey, Greece, or Romania -- tend to have lower ratings,” researchers led by Alvise Lennkh said. “Against this backdrop, it is crucial that governments mobilize resources and implement reforms that reduce their exposure to natural risks and enhance their capacity to cope with climate extremes.”
The warning comes as world leaders are meeting in Glasgow for a United Nations climate summit aimed at mitigating global warming, which is increasing the likelihood of extreme weather events. Within Europe, the Mediterranean region is the most exposed to droughts and coastal floods, the researchers said, followed by countries in central and eastern Europe due to inland flood risk.
One outlier is the Netherlands, which the World Risk Index ranks as the most exposed in Europe along with Albania. That stands out given its geographical location, higher credit rating and smaller historic economic losses from extreme climate events.
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