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KUALA LUMPUR, Nov 18 -- Physical climate risk can affect sovereign creditworthiness through its impact on a sovereign’s ability to repay its debt, with varied credit effects at stake, Moody’s Investors Service said.
It said climate models show differentiated exposures to physical climate risks for sovereigns globally, with sovereigns in Sub-Saharan Africa and Asia generally most exposed.
“Resilience includes general resilience to shocks, which tends to be low for the sovereigns most exposed to climate change.
“But policy focus on investment in climate resilience is growing, with, in particular, calls during the 2021 United Nations Climate Change Conference or COP26 to dedicate more public and private funds to climate adaptation,” it said in a statement today.
In addition, it said sovereigns’ ability to mobilise and invest adaptation funding effectively will in part determine the credit impact of physical climate risk.
Moody’s delegation had on Nov 8 attended COP26 in Glasgow to deliver remarks on how it assessed the credit implications of climate risk, highlighting material differences in sovereigns' exposure and resilience to physical climate change.
Hosted by the United Kingdom from Oct 31-Nov 13, the summit brought parties together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on climate change.
“Climate hazards and long-term climate trends affect human and physical capital, with material economic implications.
“Sovereigns exposed to climate change also face significant fiscal costs to rebuild post disaster and adapt to the long-term trends, which affects their fiscal strength,” Moody’s said.
It said climate change may also threaten the viability of exports, such as agricultural exports, putting pressure on their external position over time.
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