Wealthy Nations Under Scrutiny over Failure to Meet Climate Change Commitments, Financial and Legal Risks Loom
Investors and experts are sounding the alarm over wealthy nations’ failure to adequately address climate change, financial and legal consequences potentially on the horizon. A recent study by the Assessing Sovereign Climate-related Opportunities and Risks Project revealed that many rich countries are failing to live up to their climate promises and are nowhere near achieving the very stringent 1.5°C threshold of the Paris Agreement. This broadening concern among investors-including those who hold government debt-highlights risks in financial terms when there is no action to curtail global warming.
Wealthy Countries Climate Promises Not Living up to the Conventional Expectations
The ASCOR report analyzed the emissions reduction pledges and climate policies of 70 countries, and found that most wealthy nations lack the alignment of their policies with a target to limit global warming to 1.5°C in 2030. According to the said study, present efforts in these nations are insufficient in reducing their emissions for the achievement of climate goals.
As global temperatures continue to rise, with 2024 set to be the hottest year on record, the urgency for governments to take action is clear. The World Meteorological Organization recently reported that global temperatures have reached 1.5°C above pre-industrial levels, marking a critical threshold in climate change.
Despite this grim reality, most investors believe financial markets are not yet fully incorporating risks from climate change. The study from ASCOR provides a new concept: the “climate-sovereign debt doom loop.” It is a framework to estimate how climate change may further aggravate national debt burdens of countries, mainly as they bear the growing costs of extreme weather events, infrastructure destruction, and disasters related to climate.
Legal Risks and Global Accountability
Countries are also increasingly being taken to court for their failure to effectively address climate change. Proceedings against them have already taken a legal stance, as the International Court of Justice will hold a session in April to decide on claims of failing to protect their citizens from the devastating effects of climate change-persistent wildfires, floods, etc. This further presses governments to take effective action to guarantee the safety of both their citizens and their financial stability at large.
The situation in the United States has added to concerns, as President-elect Donald Trump is expected to withdraw from the Paris climate agreement. Additionally, his nomination of a fracking industry executive to head the Energy Department raises further concerns about the future of U.S. climate policy.
Corporate resistance against multinational companies in Europe tests the commitment of policymakers in implementing sustainable practices. Climate policy administrative costs are too high, claim many critics who counter that such pushback from corporations erodes efforts to address the climate change issue head-on.
Positive Developments and Success Stories
However, the following message brings positive indications of breakthroughs. Some countries such as Costa Rica and Angola seem to be focusing on the right path where their policies begin to conform with the 1.5°C climate target. They are bringing together very effective climate policies that offer promise and hope in holding off the worst of global warming.
As noted by ASCOR, 40 countries have enacted legal provisions to address climate change, and three-fourths of the countries have plans to deal with physical impacts of climate changes like sea level rise and extreme weather.
Of course, all these developments only prove that while things are indeed terrible, there’s still a chance for appropriate action to be taken.
Fossil Fuel Dependence and Climate Financing Deficiencies
Amid all these seemingly positive developments, however, many countries still rely so heavily on fossil fuels that the speed of change is too slow to implement global climate targets. To date, less than 20% of countries have pledged to end the licensing of new coal, oil, and gas production. More than 80 per cent of these countries also do not have clearly accountable and credible plans to end subsidies on fossil fuels that keep on encouraging the extraction and consumption of fossil fuels.
Besides, climate finance is also a significant issue that remains an open question. High-income countries had repeatedly failed to meet their financial commitments to developing nations, with more than 80% of high-income countries not sharing their fair share to the annual target of USD 100 billion in climate finance. This target is to be increased to USD 300 billion at the following COP 29 Summit in Baku, but the gap in funding persists.
Expansion of Climate Risk Analysis Scope
In response to increased demand for consistent and comprehensive climate data, ASCOR had extended its analysis from the original 25 countries to cover now 70 nations. The former expanded coverage hopes to give investors a more accurate view of climate risks surrounding sovereign debt as well as governments’ abilities to tackle climate-related challenges.
Though encouraging, the expansion of legal frameworks and of climate-risk management plans points up that overall, rich countries remain just too uncooperative. A very urgent need for increased commitment and stronger climate policies has arisen in a world where climatic impacts grow ever more severe.
Conclusion
The ASCOR study brings to the fore the stark contrast between the promises of wealthier nations and the urgent action needed to combat climate change. With increasing legal and financial risks looming, governments must become more decisive in order to meet their climate pledges, reduce emissions, and provide needed climate financing. While some countries are making progress, much more needs to be done to avert the worst impacts of climate change. The financial and legal consequences of inaction are becoming clearer, and investors are increasingly calling for governments to take credible and tangible steps to protect both the environment and their financial future.
Source: Bloomberg, ASCOR Study