Objective:Climate risk analysis plays an important role in indicating whole economies' exposure to extreme loss of capital due to climate change. South Pole's analysis supports investors to identify and measure the risks to their invested capital by incorporating countries' climate-related risks and opportunities into their sovereign bond and broader investment strategies.
South Pole develops risk indicators for investors to measure their climate-related risks today and into the future. South Pole's Sovereign Climate Change Risk Model indicates risks related to climate change and assesses a country's preparedness for a 2-degree low carbon economy.
Our approach allow investors to assess a country's ability to pay back its debt under different climate change scenarios. By assigning relative climate risk scores to sovereign bonds, our assessment addresses risk indicators such as
- Country Preparedness: How well prepared is a country in its economy and governance for a two-degree economy?
- Vulnerability: How vulnerable is a country to the impact of climate change?
- Fossil Fuel Dependence: How dependent is a country on fossil fuel reserves?
- Low-carbon Solvency: How does a low-carbon scenario impact a country's ability to pay back its sovereign debt?
South Pole's Climate Change Sovereign Risk Model
Risk categories and indicators
|Emission Performance||Average emission intensity change|
|Volatility in emission intensity change|
|Nominal emission intensity|
|Environmental Performance Index (EPI) score|
|Institutional Performance||Policy initiatives / laws in place to address climate change|
|NDC Alignment with 2°C future|
|Credibility of climate change pledges|
|Climate Change Policy Performance Index (CCPI) score|
|Government Performance||Renewable R&D budget as part of total energy spending|
|Total subsidy (% of GDP) on fossils and electricity|
|Portion of energy consumption from renewable sources|
|Global Green Economy Index (GGEI) score|
|Liability to Risk Performance||Disaster Losses as % of GDP|
|Income from environmental taxes (% of GDP)|
|Global Climate Risk Index|
|Status of adaptation framework|