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Climate change is riskiest for these countries: S&P

Caribbean and Southeast Asian countries are the most at risk of climate change impacting their credit ratings, Standard & Poor's (S&P) said on Thursday.

In this handout from the National Oceanic and Atmospheric Administration (NOAA), Hurricane Joaquin is seen chruning in the Caribbean September 30, 2015.
Getty Images
In this handout from the National Oceanic and Atmospheric Administration (NOAA), Hurricane Joaquin is seen chruning in the Caribbean September 30, 2015.

Climate change will worsen the hit to countries' ratings from severe natural catastrophes by one-fifth of a notch on average, according to simulations by S&P. But the hit could be even greater for vulnerable countries, such as Thailand, which could see a fall in the ratings by as much as two notches.

"Our simulations indicate that climate change-related natural hazards can harm sovereign ratings," S&P credit analyst, Marko Mrsnik, said in a report 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. Geographically, ratings of sovereigns in the Caribbean and Southeast Asia appear to be most at risk," he added.

Worsening climate change risks include tropical cyclones in the Bahamas, Barbados, Dominican Republic, Jamaica and Vietnam and floods in Thailand, S&P said.

Debris covers a road after heavy rains from Tropical Storm Erika hit the Caribbean island of Dominica in this picture from Robert Tonge, Dominican Minister for Tourism and Urban Renewal, taken August 27, 2015.
Robert Tonge | Reuters
Debris covers a road after heavy rains from Tropical Storm Erika hit the Caribbean island of Dominica in this picture from Robert Tonge, Dominican Minister for Tourism and Urban Renewal, taken August 27, 2015.

The credit rating agency said that tropical cyclones and floods led to an average downgrade of around one notch — but this would become an average decline of 1.2 notches with the impact of climate change.

The warning comes as heads of state get ready for the COP 21 climate change conference, which starts next Monday in Paris. 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. Disputes have already emerged as to whether any agreement should be legally binding, however.

S&P sees the economic cost from natural disasters being worse because of climate change. For the most affected countries, the loss would range from around 1.6 percent of per capita income in Bermuda to 8.5 percent in Thailand, compared with a simulation with no climate change.

Plus, 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.

Each of the last three decades has been warmer than the any preceding 10-year period since 1850, according to a report from the Intergovernmental Panel on Climate Change last year. It forecast that heat waves would "very likely" occur more frequently and last longer throughout the 21st century and that between 2016 and 2035, the Earth's surface temperature would warm by 0.3-0.7 degrees Celsius.

Some analysts debate whether Caribbean countries like Barbados are most vulnerable to climate change, however.

Earlier this month, political risk consultancy, Verisk Maplecroft, rated Barbados as the seventh-least vulnerable country in the world to global warming and St. Lucia as the 10th, based on nations' exposure to extreme weather events and their capability to adapt.

"The magnitude of projected changes in annual temperature and rainfall over Barbados and St. Lucia are less than more northern Caribbean nations and indeed many Central American countries. The main hurricane track lies to the north of St. Lucia, meaning any changes in the frequency and/or intensity of tropical cyclone systems may be more keenly felt in more northern Caribbean nations," Richard Hewston, principal environmental analyst at Verisk Maplecroft, told CNBC.

S&P said that some countries would be able to adapt to the challenges posed by climate change, but that this could prove impossible for the most vulnerable nations in the Caribbean, Asia, Africa and elsewhere 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."

Mohamed Nureldin Abdallah, Reuters

— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.