Deforestation for a palm oil plantation in Malaysia. Photo by: Rhett A. Butler.
Environmental damage poses a long-ignored risk to sovereign bonds, according to a new report by the UNEP FI (The United Nations Environment Programme Finance Initiative) and the Global Footprint Network. The report, E-RISC Report, A New Angle on Sovereign Credit Risk, finds that the overuse of natural resources and their degradation has put considerable, and largely unrecognized, risk against national economies.
“We see some simple similarities with the current credit debt crisis where we borrowed too much from the future,” Erik-Jan van Bergen, CEO of SNS Asset Management, told Ecosystem Marketplace. “We run the same risk in the ecological space.”
Focusing on renewable natural resources—such as fisheries, forests, and grazing land—the study found that the majority of the world’s countries are no longer able to provide for themselves. Currently 80 percent of the world’s population lives in countries that depend on natural resources from beyond their borders, a situation exacerbated by overpopulation and consumption.
“As resource constraints tighten globally, countries that depend, in net terms, on levels of renewable natural resources and services beyond what their own ecosystems can provide may experience profound economic impacts as resources become more unreliable or costly,” the report reads.
Risk appears in a number of different guises including depending on resources from abroad, unsustainable use of one’s own national resources, and unpredictable market responses to future efforts to mitigate climate change.
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