Climate change is likely to drop India’s credit rating: You may save this

India's sovereign credit rating may be lowered as early as the 2030s as a result of the effects of climate change and the rise in temperature volatility, according to research. Delaying green investments would result in increased borrowing costs for countries, which will raise the cost of corporate debt, according to the team, which is led by researchers from the University of East Anglia (UEA) and the University of Cambridge in the UK.

The study is the first to integrate climate science with "real world" financial data, and it was released on Monday in the journal Management Science. Without emissions reduction, it predicts that 59 countries' sovereign credit ratings would decline over the course of the next ten years.

Investors frequently use sovereign ratings to determine a country's creditworthiness. The ratings, and the agencies that support them, serve as the gates to the world's capital, covering more than USD 66 trillion in sovereign debt.

In order to model the economic impacts of climate change on Standard and Poor's (S&P) ratings for 108 nations over the course of the next 10, 30, and 50 years as well as towards the end of the century, the researchers employed artificial intelligence (AI).

Meanwhile, the 4th and last Energy Transition Working Group Meeting held by India under the G20 summit came to an end when the members of the group took a discussion on topics of climate change, sustainability, energy security, equitable energy access and financing, and global energy transitions. As most of the developing nations stay committed to Sustainable Development Goals (SDGs), the efforts from developed countries seemed stagnant. 

The fact can be seen as the carbon emission per capita in India along with Bangladesh seen as 1.78 metric tones and 0.55 metric tons respectively, while developed countries like the USA stand at 14.67 metric tons.

Countries like the USA, China and other industry houses stand far above the baseline target of 2.3 metric tons per capita as set by the Institute of European environmental policy. Despite this, the USA allocates only  1-4% of its GDP for climate change programs. Whereas, India being a developing nation allocates around 3-10%. Amid such a situation, the lowering of credit rating in green investment for developing countries seems absolutely discriminatory. 

According to Patrycja Klusak, a researcher linked with Cambridge's Bennett Institute for Public Policy and a professor at UEA's Norwich Business School, "this research helps to bridge the gap between climate science and real-world financial indicators."

As the climate warms and temperature volatility increases, "we find significant consequences from climate change as early as 2030, with significantly greater downgrades across more countries," Klusak added.

The results provide credence to the premise that postponing green investments will raise borrowing costs for countries, which will result in higher costs of corporate debt, according to the researchers. 

“Because they were unprepared for the 2008 financial crisis, rating agencies suffered in terms of reputation. They must act immediately to reflect the considerably more serious effects of climate change”, Klusak continued.

The team, which included Dr Moritz Kraemer, a former chief sovereign rating officer for S&P, discovered that by 2030, 59 countries might have their credit ratings lowered by an average of more than one notch if nothing is done to reduce greenhouse gas emissions.

According to the experts, Chile, Indonesia, China, and India would all go up a grade, while the US, Canada, and the UK would move down a notch each. They said that between January 2020 and February 2021, 48 sovereigns were downgraded by the three major agencies as a result of the economic turbulence brought on by the Covid-19 epidemic.

According to the analysis, adhering to the Paris Climate Agreement and limiting global warming to two degrees would have no immediate negative consequences on sovereign credit ratings and little long-term implications.

The researchers also estimated how these sovereign downgrades might affect company ratings and debt in 28 other countries. They discovered that the Paris Agreement may cost corporations up to USD 17 billion more globally by 2100 and that it might cost corporations up to USD 61 billion more if no action were taken to cut emissions.

The main concept, according to the study team, was to adhere as closely as possible to both climate science and actual financial practices.

AI creditworthiness prediction models were trained using S&P ratings from 2015 to 2020. In order to get "climate-smart" credit ratings for a variety of global warming scenarios, they were later coupled with climate economic models and S&P's evaluations of the risk of natural disasters.

For India to achieve its climate-changing goal it feels more than necessary to switch energy sources from fossil fuel to more feasible and sustainable sources like electricity. 

As the given research is carried out by an AI while studying trends and data available, it still has a margin of error which may get altered if the demand of the Indian market increases. The potential customers of

electric vehicles