Natural disasters linked to extreme weather have always been a part of the global system, but their impacts have intensified significantly in recent years. Today, 90% of all disasters are now classified as weather- and climate-related, costing the global economy billions of dollars annually.

As climate change accelerates, the world finds itself on the brink of a deepening environmental crisis. This has heightened the focus on assessing the nature risk and biodiversity loss of sovereign nations.

Biodiversity loss and nature-related risks have the potential to severely affect a country’s creditworthiness, increase its default probability, and raise the cost of capital. The degradation of ecosystems and the resulting loss of vital services can hit economies in multiple ways. The combined macroeconomic effects can deeply impact a nation’s fiscal health and its sovereign credit ratings.

Thus, evaluating nature- and climate-related risks has become a crucial factor in credit assessments, especially for sovereign nations.

Research indicates that more than 50% of the global GDP is heavily reliant on nature. When environmental degradation occurs, it can ripple through economies—sometimes starting in one sector and spreading to others. For instance, a hit to natural resources can have direct and indirect consequences for affiliated industries.

A recent analysis by economists shows that a country’s dependence on natural resource exports directly affects its sovereign credit ratings and its resilience to global economic shocks. Since the 2008 financial crisis, data shows that countries highly dependent on non-renewable resource exports—such as oil and minerals—have experienced declines in their credit ratings. This is due to increased economic volatility tied to these exports, which negatively affects fiscal stability. Managing the economic shocks that stem from this reliance on non-renewable resources has proven to be a significant challenge.

Conversely, nations that export renewable natural resources, such as agricultural products, have generally maintained more stable credit ratings. This stability is often attributed to the sustainable management of their natural resources, which helps them better navigate global disruptions.

As the world faces ever-growing environmental risks, it is clear that credit ratings must increasingly account for the role of nature in economic stability. Countries that prioritize sustainable management of their ecosystems are better positioned to weather economic storms and maintain fiscal health.