NEW DELHI: New research shows that India’s sovereign credit rating will be downgraded due to the impact of climate change and the rise in temperature volatility by 2030s. The reason behind this is the delay in green investment which later increase the borrowing cost for nations and subsequently increase debt.
Sovereign ratings assess the creditworthiness of countries and are a key gauge for investors.
A team of economists at the University of East Angelia and Cambridge used artificial intelligence (AI) to simulate the economic effects of climate change on Standard and Poor’s (S&P) ratings for 108 countries over the next 10, 30 and 50 years, and by the end of the century.
It combines AI models, which predict creditworthiness, with climate economic models to get “climate-smart” credit ratings for a range of global warming scenarios.
The study published today in the journal Management Science was led by Dr Patrycja Klusak, from UEA’s Norwich Business School, and an affiliated researcher at Cambridge’s Bennett Institute for Public Policy.
It is the first study which adjusted climate risk to a country’s sovereign credit rating for a range of global warming scenarios. 59 nations along with India will experience a drop in sovereign credit rating in the next decade without reducing emissions.
“This research contributes to bridging the gap between climate science and real-world financial indicators,” said Dr Klusak. “From a policy perspective, our results support the idea that deferring green investments will increase costs of borrowing for nations, which will translate into higher costs of corporate debt.”
The research report states that if nothing is done to curb greenhouse gases, 59 nations could be downgraded by over a notch on average by 2030. India along with China, Chile, and Indonesia would all drop two notches, with developed nations like the US and Canada falling by two and the UK by one.
To make sense of this downgrade, the pandemic caused by the covid-19 resulted in downgrade caused economic mayhem between January 2020 and February 2021.
The study suggests that India’s sovereign rating would be downgraded by five notches if no emission reduction by the end of the century. In this condition, 81 sovereign nations would face an average downgrade of 2.18 notches by the century’s end.