Scientific Climate Ratings launches sovereign climate risk framework

Scientific Climate Ratings, an EDHEC Business School venture, has launched a framework to assess how long-term physical climate risks could impact the economies of over 190 countries and 3,400 regions.

The framework, Sovereign Climate Risk Ratings, aims to help investors, asset managers and banks assess and price sovereign climate risk by linking rising temperatures to future GDP outcomes.

The framework assigns countries a rating from A to G, with G representing the highest exposure to climate-related economic losses. Ratings are calculated for 2035 and 2050 and are based on projected GDP-per-capita impacts derived from regional economic data.

According to the initial results, the US is projected to experience a GDP-per-capita loss of 4.6% by 2035 and 10.4% by 2050, earning an E rating. (...)

“Chronic risks rarely dominate headlines, but increasingly, they are impacting a nation’s gross productivity, thereby reducing growth potential,” said Nicolas Schneider, senior research engineer-macroeconomist at the EDHEC Climate Institute. “Our framework quantifies this risk as an unconditional expectation that can be added to investors’ financial models. The competitive edge of this rating is the early identification of structural sovereign exposure before it is priced into market spreads.”