Ignoring natural capital could see countries' credit ratings downgraded

Will Nichols in Business Green: Degradation of a country's so-called natural capital could exacerbate the sovereign debt crises that have helped trigger, and deepen, the global economic downturn, the UN warned yesterday. A report by the UN Environment Programme's Finance Initiative (UNEP FI) says loss of soils, forests, and fisheries, as well as rising resource costs, are likely to become increasingly important to a nation's economic health – and may therefore affect its ability to repay or refinance sovereign debt.

However, despite the US, Spain, Italy and Greece all seeing their sovereign debt downgraded since 2011, environmental factors are still being overlooked by the models used to determine sovereign credit ratings.

The UN's analysis of France, Japan, India, Turkey and Brazil found all five countries are pushing their ecological assets to the limit and lowering their resilience to natural resources risks, such as spikes in commodity prices.

India, for example, is currently demanding almost twice as much from its ecological assets than they can sustainably provide, and this gap is growing. The report argues that population growth means an increasing amount of the country's natural resource requirements will have to be met through imports. As such, the country's ability to cope with commodity price shocks will continue to diminish, potentially undermining its credit-rating.

Meanwhile, France is sweating its natural resources at a level 1.4 times that which can be sustainably provided and Japan could only meet 35 per cent of its natural resource needs domestically in 2008, down from 73 per cent in 1961....

Mount Fuji and cherry blossoms, shot by Midori, Wikimedia Commons, under the Creative Commons Attribution 3.0 Unported license