Extreme weather from floods to wildfires and record heat can have significant economic and credit consequences. As governments and businesses fall behind on decarbonization goals, those risks will only intensify.
Key takeaways:
- Transition risk: Intensifying weather and slow decarbonization increase economic and credit vulnerabilities, particularly in emerging markets with limited resilience and scarce insurance coverage.
- Adaptation measures: Infrastructure and nature-based solutions can reduce risks and deliver long-term benefits, though financing remains far below needs.
- Financing solutions: Growing policy and investor focus, multilateral development bank mobilization, and innovative private-sector financing offer potential, but pace may lag behind transition risks.
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Discover how Moody’s Ratings analysts assess the impact of severe weather events, such as hurricanes and heatwaves, on global credit risk. Emerging markets face the highest exposure, with limited fiscal capacity and low insurance coverage reducing their ability to build resilience.
Strong water management increases economic resilience to physical climate risk
The interaction between water management and physical climate risks is becoming increasingly material to the credit quality of governments and water-intensive corporate sectors.
Threats to marine ecosystems drive rising credit risk for ocean economy sectors
Damage to the marine environment poses major credit risks for economies heavily reliant on ocean-related industries, such as fisheries, shipping and coastal tourism.
COP30: In the race for resilience, adaptation finance is a stumbling block
Physical risks such as drought and sea-level rise could cut global economic output by about 17% by 2050 under current policies. Adaptation measures can rein in costs, but financing is often elusive.
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