AIIB warns climate inaction could downgrade a third of sovereign borrowers by 2050

Delayed physical impacts to hit economies by 2050 without stronger climate policies, says Beijing-based multilateral lender

More than a third of Asian Infrastructure Investment Bank’s (AIIB) sovereign borrowers could face credit rating downgrades by 2050 if global climate policy fails to strengthen, the Beijing-based multilateral lender said in a report.

Under a current policy scenario – in which existing climate rules remain unchanged and global temperature rises by around 2.9 degrees Celsius above pre-industrial levels – nearly 34 per cent of the bank’s sovereign portfolio would suffer downgrades, according to the report published on Monday.

“Rising CO2 [carbon dioxide] emissions without additional carbon pricing lead to more severe long-term economic impacts on sovereigns from climate-driven catastrophes,” the bank said.

Developing economies that relied heavily on nature-dependent sectors remained particularly vulnerable to escalating physical risks, it added.

The downgrades would not materialise immediately, the report said. Effects on sovereign ratings would only begin to manifest between 2035 and 2040, driven primarily by delayed physical climate impacts such as rising sea levels, extreme heatwaves and severe flooding.