S&P Global Ratings Assess Countries’ Vulnerability To Economic Losses From Physical Climate Risks

For most countries, exposure to, and costs from, the physical impacts of climate change are increasing. Over the past 10 years, storms, wildfires, and floods alone have caused losses of around 0.3% GDP per year globally according to Swiss Re loss data. In an exploratory scenario analysis of the vulnerability and readiness of 135 countries to climate change over the next 30 years, S&P Global Ratings’ recent report, ‘Weather Warning: Assessing Countries’ Vulnerability To Economic Losses From Physical Climate Risks,’ finds that physical climate risks could expose 3.3%, 4%, and 4.5% of world GDP to losses by 2050 under climate pathways RCP2.6 (Paris Agreement), RCP4.5 (current policies), and RCP8.5, assuming no adaptation and all risks materialise simultaneously.

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Economic Losses From Physical Climate Risks

Key takeaways include:

• Regional impacts from climate risks differ and are most pronounced in South Asia (10%-18% of GDP at risk) and is high for Central Asia, Middle East, North Africa, and Sub-Saharan Africa.
• Lower- and lower-middle income countries are likely to see 3.6 times greater losses on average than high-middle- and higher-income countries.
• S&P Global Ratings’ readiness assessment highlights economic losses are likely to be higher and more persistent for those same countries, which have less capacity to adapt, more precisely, weaker institutions and less financial capacity.
• International cooperation and support can help the most vulnerable countries to finance a rising adaptation gap while building resilience to climate change, a problem to which they have contributed relatively little.
• Given the uncertainties inherent in climate science, we do not consider this scenario analysis as part of our base case for sovereign ratings. S&P Global Ratings incorporates the adverse physical effects of climate change, where material and visible and regardless of the time horizon, into the analysis. This scenario analysis aims to provide insights into the potential exposure and readiness of different sovereigns to different types of climate risk.