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Countries will pay for destroyed Natural Capital

Summary

The credit risk of a country will depend on the management of its stocks of natural resources (known as “natural capital”) and is set to increase over the next decade, says the London School of Economic (LSE)’s Grantham Research Institute on Climate Change and the Environment. The report identifies Argentina and Brazil as facing the greatest number of risk factors associated with its economic dependence on soft commodities such as soybean and cattle.

Why is this important

The report identifies Argentina and Brazil as facing the greatest number of risk factors associated with its economic dependence on soft commodities such as soybean and cattle.

A global shift to a zero-deforestation economy could, in fact, put at risk 4.8% of Argentina’s soybean exports alone if practices were not improved, equivalent to a US$1.7 billion loss in government revenue. For Brazil, 9% of its soybean exports would be affected – a market valued at over US$32 billion in 2018.

According to the report, an estimated 28% of Argentina’s sovereign bonds and 34% of Brazil’s sovereign bonds will be exposed to anticipated changes in climate and anti-deforestation policy throughout the next decade. After 2030, however, this exposure is expected to rise to 44% for Argentine sovereign bonds.

Globalance advocates the integration of country’s natural capital strategies in routine assessments of credit risk. The cost of capital has to reflect, amongst traditional factors, sovereign climate change and natural capital strategies.

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