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Environmental problems should be considered as risks to sovereign credit: UN report

English.news.cn   2012-11-20 08:30:16            

LONDON, Nov. 19 (Xinhua) -- A report published here on Monday by UN Environment Programme (UNEP), Global Footprint Network and a number of financial institutions, called on countries to view their financial stability in a different angle - environment.

The report, named "E-RISC: A New Angle on Sovereign Credit Risk," is the first of its kind to highlight the link between environmental problems such as degradation of natural resources, and the economic stability of countries including their ability to repay sovereign debt. E-RISC stands for Environmental Risk Integration in Sovereign Credit Analysis.

"It represents a first start at mapping out the connections between natural resource risks, the broader environmental implications and the economic and financial materiality for sovereign credit risk," said Achim Steiner, UN Under-Secretary-General and UNEP Executive Director, in the foreword of the report.

He praised the report as it "provides a first attempt on how such natural resource criteria can be factored in sovereign credit risk models and thus in the selection and weighting of sovereign bonds and sovereign credit ratings."

The report takes five countries - Brazil, France, India, Japan and Turkey - as a sample for analysis, and reached two major conclusions.

Firstly, countries that depend heavily on natural resources and services from other regions may find that their resource supply becomes unreliable or costly, and this has economic implications. For example, a ten percent variation in commodity prices could lead to changes in a country's trade balance equivalent to 0.5 percent of a nation's GDP.

Secondly, a ten percent reduction in the productive capacity of renewable, biological resources within a nation could lead to a reduction in trade balance equivalent to 4 percent of its GDP.

"There are many more risks, but we feel these were two that are very prevalent right now," said Susan Burns, Founder and Senior Vice President of Global Footprint Network, which is an international research organization focusing on sustainability.

She told Xinhua that the two risks "could have material impact on the economy, and also on nations' ability to pay their debts."

"The time has come for a better understanding of the connection between environmental and natural resource risk and sovereign credit risk - only then will investors, credit rating agencies and governments be able to plan over the medium to long term with the kind of insight aimed at ensuring long-term economic health and stability," she said.

Editor: Yamei Wang
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