Long Reads

Political Risks and Climate Change: Where Are the Flashpoints?

Special Report / Country Risk / Global / Wed 13 Jul, 2022

Climate Policies Raise Scope for Political Risk to Manifest on Several Fronts – A Joint Report from Sustainable Fitch and Fitch Solutions Country Risk Analysts

Climate change and political risks will mutually reinforce each other as both transition risk, which results from the global shift toward a low-carbon economy, and physical risks rise. Capping temperature rises at well below 2.0°Celsius above pre-industrial levels – aiming for under 1.5°C – as resolved under the Paris Agreement implies significant societal and economic changes.

This special report, co-authored by the Sustainable Fitch and Fitch Solutions Country Risk teams, uses the Fitch Solutions proprietary political risk indices to explore the political issues that may arise from the low-carbon transition and the implications for the place of climate policy adoption.

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Key highlights include:

●  Political trends stalling climate policies.
   ○  DMs and European EMs Most Resilient; US & Australia Most Polarised on Climate Change
   ○  Potential Flashpoints Between Geopolitical and Domestic Political Risks and Climate Change
●  Socioeconomic dislocation can undermine progress on climate agendas
   ○  Unjust Transition’ in Focus; EMs Will Struggle to Adapt
   ○  Climate Migration to Drive Political Risk
   ○  Stranded Assets, Coal Decommissioning Require Funding
   ○  Price Volatility, Greenflation Fuel Discontent
●  Climate Activism and Domestic Unrest

"Political risk, including polarisation over climate issues and concerns over a just transition, can cause climate policy instability or stalling. This political landscape could be arduous to navigate for investors, which are increasingly tasked with allocating capital to low-carbon technologies with long lifespans and payback periods"

Source: Sustainable Fitch

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