Scientific Climate Ratings, an EDHEC Business School venture, has launched a framework to assess how long-term physical climate risks could impact the economies of over 190 countries and 3,400 regions.
The framework, Sovereign Climate Risk Ratings, aims to help investors, asset managers and banks assess and price sovereign climate risk by linking rising temperatures to future GDP outcomes.
The framework assigns countries a rating from A to G, with G representing the highest exposure to climate-related economic losses. Ratings are calculated for 2035 and 2050 and are based on projected GDP-per-capita impacts derived from regional economic data.
According to the initial results, the US is projected to experience a GDP-per-capita loss of 4.6% by 2035 and 10.4% by 2050, earning an E rating.
China is rated C , with projected losses of 3.8% and 8.5% over the same periods, while the UK is rated A, with projected losses of 1.8% in 2035 and 4.0% in 2050. France received a B rating, while India is rated E and Brazil is rated G.
National GDP impacts are derived from estimates of gross regional product, enabling the methodology to account for regional variations in climate exposure and economic activity.
The framework covers chronic physical risks linked to temperature-driven productivity changes and evaluates countries under nine climate pathways. A probability-weighted “expected scenario” serves as the basis for the sovereign rating scale. It currently covers countries and regions representing more than 95% of global economic output.
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Future enhancements will include additional quantitative metrics, greater geographic granularity and estimates of sovereign spread adjustments linked to climate risk.
“Our framework captures the structural, compounding output losses caused by chronic warming at the regional level and aggregates them into sovereign-level impacts,” said Rémy Estran-Fraioli, PhD, CEO of Scientific Climate Ratings. “It provides the missing transmission channel between climate warming and sovereign fundamentals, identifying structural exposure before spreads fully adjust.”
“Chronic risks rarely dominate headlines, but increasingly, they are impacting a nation’s gross productivity, thereby reducing growth potential,” said Nicolas Schneider, senior research engineer-macroeconomist at the EDHEC Climate Institute. “Our framework quantifies this risk as an unconditional expectation that can be added to investors’ financial models. The competitive edge of this rating is the early identification of structural sovereign exposure before it is priced into market spreads.”
