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Climate change makes repaying COVID-19 debt harder

Angela Eichorst reports on new research on the link between COVID-19 debt and climate change.

In an article for Nature, the Oxford Sustainable Law Programme (OSLP) warned that 77% of sovereign-bonds in 2020 did not adequately disclose climate risk. As global temperatures and sea levels rise, OSLP predicts that countries might face lower production, as well as be at increased risk of one-off weather disasters. As sovereign-bonds issued during the Covid-19 pandemic mature over the next 30 or even 100 years, governments will “either have to invest to mitigate climate change as part of their commitments under the Paris climate agreement — or face the costs of global warming directly”, according to the report. 

OSLP calls a scenario where countries fail to understand the economic risks concurrent with climate change a “climate crash.” 

The news comes as the International Monetary Fund and World Bank convene their spring meetings where environmental issues are featured on the agenda. OSLP has some solutions of its own to propose. In their three-step framework, OSLP’s report first recommends that researchers create better tools for funds to understand climate risk as they take on investors. 

Secondly, governments should use credit from their Covid-19 funds to prioritise greening their economies by increasing spending on clean energy which will create jobs in the process. 

Thirdly, richer countries (and their finance development institutions) should buy back debt from poorer countries on the condition that poorer countries use the money to invest in their climate resilience, as seen in the debt-for-nature swap in the Seychelles.

Out of all the countries OSLP looked at, only three (Bermuda, the Dominican Republic and El Salvador) acknowledged a risk of more frequent natural disasters in their sovereign-bond prospectuses. Only two (Bulgaria and United Arab Emirates) identified risks in their transition to greener economies. 

Despite Boris Johnson’s initial promise to “plan a green recovery,” OSLP reports that the UK has so far failed to capitalise on the opportunity to utilise Covid-19 credit to build a more environmentally resilient economy.   

Image Credit: Marcus Spiske via unsplash.com

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