The International Financing Review (IFR) has covered Scientific Climate Ratings’ Sovereign Climate Risk Rating (SovCRR) launch. The piece examines how this landmark framework will help to price the macroeconomic impact of rising temperatures on economies worldwide by identifying winners and losers in the future global economy and highlighting sub-national variation. 

The article frames the SovCRR as a much-needed response to a growing pricing gap, noting several reports that demonstrate the important timing of this launch. OrtecFinance warned in May that sovereign debt faces credit downgrades and higher risk premiums as extreme weather intensifies and climate tipping points creep closer, whilea report by the Banking Environment Initiative said that banks are mispricing physical climate risk. 

Rémy Estran-Fraioli, CEO of Scientific Climate Ratings, told IFR: “Climate change is a global phenomenon, but climate risk is local and financial.” He added that amid the backlash against ESG and growing anxiety about climate change, the ratings’ goal is to bring clarity and rectify the mispricing of physical economic risk.  

The article shares several findings revealed by the SovCRR: 

• In the A-to-G SovCRR framework (with G being the highest degree of exposure), Western Europe spans ‘A’ to ‘C’ and Africa spans ‘D’ to ‘G’ ratings.  

• Higher-latitude countries emerge as relative winners, with Russia and the UK rated ‘A’, France ‘B’, and China ‘C’. 

• The methodology projects a US GDP per capita loss of –4.6% by 2035 and –10.4% by 2050, which accounts for subregional variation and population distribution. 

The IFR’s coverage supports our view that sovereign climate risk needs to be expressed in terms that investors, banks, and policymakers can use to price the risk and justify adaptation and resilience investments. Scientific Climate Ratings meets that demand directly, translating chronic physical risk across 3,400 subnational regions, aggregated to 191 countries. The output is a standardised rating that quantifies expected GDP impact, rather than leaving sovereign risk as a qualitative judgement call. 

Read the full IFR article here.