A major international credit rating agency has warned that Caribbean and Southeast Asian countries are mostly at risk of climate change affecting their credit ratings.
“Our simulations indicate that climate change-related natural hazards can harm sovereign ratings,” said Marko Mrsnik, a credit analyst with the Wall Street-based Standard & Poor’s (S&P) Credit Rating Agency, in a statement on Thursday.
“In terms of average impact of climate change by peril, our simulations show that tropical cyclones and associated storm surges will be more damaging than floods as the earth’s temperature rises,” he added. “Geographically, ratings of sovereigns in the Caribbean and Southeast Asia appear to be most at risk.”
Mrsnik said deteriorating climate change risks include tropical cyclones in the Bahamas, Barbados, the Dominican Republic, Jamaica and Vietnam, and floods in Thailand.
S&P predicted that credit risk to the region from natural disasters, such as cyclones, storms and floods, would rise by 20 percent on average.
The warning comes ahead of a major United Nations climate change conference in Paris, France, dubbed COP 21, which gets underway on Monday.
CNBC said it is one of the largest conferences be held in France and is viewed by some as a last chance to strike a global agreement on combating global warming.
However, CNBC said disputes have already emerged as to whether any agreement should be legally binding.
S&P said the economic cost from natural disasters would be worse because of climate change, stating that the loss would range from about 1.6 percent of per capita income in Bermuda to 8.5 percent in Thailand.
S&P also predicted that climate change would increase government debt by between slightly more than 4 percent of gross domestic product (GDP) in Vietnam and 42 percent of GDP in Bahamas, compared to a no-climate-change scenario.
The credit rating agency said while some countries would adapt easily to the challenges posed by climate change, it would be impossible for the most vulnerable countries in the Caribbean, Asia, Africa and others in the developing world.
“A larger insurance coverage against natural hazards is on average associated with more likely mitigation of adverse economic implications of any climate change impact,” Mrsnik said.
“The extent to which this can be effective, however, depends to a large degree on the strength of the fundamentals that support the rating, especially when the damage caused by the disaster is large,” he added.