Empreinte des Finances

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The international debt crisis that has roiled world markets in recent years has challenged long-held assumptions of how to best measure a country’s wealth and gage its economic stability.

Monitoring social and economic variables alone, a growing number of investors now understand, is no longer enough to understand nations’ competitiveness. In a resource-constrained world, a critical component of economic success will be through careful biocapacity management. But until now there has been no methodology that enables credit rating agencies, investors and financial information providers to integrate such ecological data in their respective risk models.

In October 2011, Global Footprint Network launched a two-year project with the United Nations Environment Programme Finance Initiative (UNEP FI) and leading financial institutions to investigate the links between ecological and financial risks at the country level, and introduce more ecologically informed risk analysis into the market.

On November 19, 2012, the key findings of the E-RISC: A New Angle on Sovereign Credit Risk report were unveiled at an interactive event hosted by Bloomberg in London.  The report found that a ten percent variation in commodity prices can lead to changes in a country’s trade balance equivalent to 0.5 percent of GDP. Further, a ten per cent reduction in the productive capacity of soils and freshwater areas alone could lead to a reduction in trade balance equivalent to over 4 per cent of GDP. (Download report as a 5MB .pdf)

Bloomberg will also now be offering Global Footprint Network’s country-level natural resource risk data (National Footprint Accounts) on all its terminals. The data will help users integrate natural resource risk into sovereign debt, economic growth and company valuation models.

Through Ecological Footprint resource accounting and other analyses, Global Footprint Network and its partners can measure a nation’s true assets and deficits—the wealth and vulnerabilities that are not currently included in credit risk models and government bond ratings. This is data that’s critically important to the finance industry.

This ground-breaking project substantiates the business case for financial institutions and ratings agencies to include ecological criteria as a key component of country risk analysis. The E-RISC report fills a methodology gap by exploring to what extent resource and ecological risks can impact a nation’s economy and how these factors affect a nation’s ability to pay its debts.

Please contact Martin Halle (martin.halle@footprintnetwork.org), a Global Footprint Network policy analyst, to learn more about the Global Footprint Network and UNEP FI project, Environmental Risk in Sovereign Credits (E-RISC): A New Angle on Sovereign Credit Risk