Increasing awareness of the physical impacts of climate change and urgency around taking action to decarbonize the global economy has proliferated among citizens, policymakers, economic actors, and other market participants in recent years. This has only been intensified by the key findings of the latest United Nations Intergovernmental Panel on Climate Change report. But rising energy and commodities prices and increasing energy supply concerns following Russia's ongoing invasion of Ukraine have forced governments to rethink their priorities. Economies are now facing tough choices about how to balance their immediate energy security needs with longer-term energy transition plans—and these trade-offs will likely have implications for decades to come.
Against this backdrop of uncertainty, markets can play a key role in shaping the path to net-zero.
Inflation, energy security, and geopolitical uncertainty currently pose the most prominent risks to global credit conditions. If the war in Ukraine delays the global transition from carbon-intensive to clean energy sources, policymakers may struggle to balance short-term social and economic priorities with long-term decarbonization ambitions. Nonetheless, the significant disruptions to global supplies of oil and gas so far this year have emphasized the importance of non-fossil-fuel power generation, particularly from renewables like solar, wind, and hydro alongside hydrogen and nuclear, according to S&P Global Ratings research.
We analyzed the vulnerability to and readiness for climate change over the next 30 years for 135 countries. The research shows that physical climate risks could expose global GDP to losses of 3.3% by 2050 under the Paris Agreement climate pathway, 4% under current policies, and 4.5% if no adaptation is undertaken and all risks materialize. The physical impacts of climate change are more pronounced in lower- and lower-middle-income countries, which are likely on average to experience losses 3.6 times greater than higher-middle- and higher-income countries, and are most pronounced regionally in South Asia, Central Asia, the Middle East and North Africa, and Sub-Saharan Africa, according to the scenario analysis.
Corporate boards will need to address several intersecting pressures and challenges related to their transparency, disclosures, and actions. Data collected in the 2021 S&P Global Corporate Sustainability Assessment indicates that most companies globally have not yet set targets to initially reduce emissions or commit to net-zero—with just 36.8% of the approximately 5,300 companies reviewed having announced plans to curb their direct or indirect emissions. Concurrently, just 11% of nearly 12,000 equity mutual funds and exchange-traded funds representing more than $20 trillion in market value worldwide are currently aligned with the Paris Agreement goal of limiting global warming to "well below" 2 degrees Celsius, according to S&P Global Sustainable1. New green bond issuance has also slowed alongside tightening financing conditions with global corporate bond issuance falling far below the record-setting volumes seen over the past two years.
As environmental, social, and governance (ESG) factors become integral considerations in the marketplace across many types of analyses, S&P Global Ratings and S&P Global Sustainable1 have jointly researched two dimensions of ESG materiality: stakeholder materiality and financial materiality. Materiality mapping can evaluate the evolving and dynamic interactions between the two in a given sector. Some ESG factors may only have the potential to yield a financial impact, while others may have limited financial impact but have a high impact on stakeholders.
This report does not constitute a rating action.
| Primary Credit Analyst: | Molly Mintz, New York; Molly.Mintz@spglobal.com |
| Secondary Contacts: | Alexandra Dimitrijevic, London + 44 20 7176 3128; alexandra.dimitrijevic@spglobal.com |
| Ruth Yang, New York (1) 212-438-2722; ruth.yang2@spglobal.com |
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