For years, many mainstream investors have been on the fence about climate change, often dismissing the topic as a “long-term issue.” But as the potential investment risks of not acting on climate change have come into clearer focus, all that has changed.

In just a few short years, the finance community has not only begun to take action on stranded asset risk, and was a major force pushing for the ratification of the Paris Agreement, but also has started expand its focus to credit risk. Since we’ve been working to bring sovereign bonds into the spotlight, we are encouraged to see a flurry of activity and interest in recent months.

In September, at PRI’s Annual Meeting in Singapore, Susan Burns, director of Global Footprint Network’s Finance for Change Initiative, moderated a panel with the leading credit rating agencies focused on how they are integrating ESG (environmental, social, and governance) more explicitly in their ratings. Nick Robins, co-director of the UNEP Inquiry, called it the “best session of PRI in Person…that is going to move the trillions.” A video of the discussion can be found here:

Then in October Susan spoke at a forum hosted by S&P Global Ratings on “Sustainability Risks and Opportunities” as part of its Global Economic & Credit Trends Forum held each year in Washington, D.C., to coincide with World Bank and International Monetary Fund annual meeting.

Prior to this, UNEP FI hosted a well-attended webinar about our ERISC 2 research on food price shocks released earlier this year. “I like to call us pioneers when it comes to looking at environmental risk and sovereign bonds,” Anders Nordheim, UNEP FI Programme Coordinator for Biodiversity, Ecosystem Services, and Water, said of the collaboration between UNEP FI, Global Footprint Network, and S&P.

“With the passage of the Paris agreement, the likelihood of governments taking action is much higher,” Burns pointed out during the webinar. Consequently, “this has given investors the go-ahead to think seriously about the transition to a low-carbon world economy. We have also seen an increased interest in investors to publically disclose carbon risk in sovereign bond portfolios.”

During our webinar, Moritz Kraemer, S&P’s Chief Rating Officer – Sovereign Ratings, talked about how the company views climate change as one of two mega-trends in the 21st century, the other being aging societies. Kraemer shared results from his research on the impact of physical climate change such as hurricanes on sovereign credit.

Kraemer extended the implications to social stresses, including migration. “In many sovereigns, in Africa especially, drought is the key result of climate change,” Kraemer noted. “In Europe, it’s very interesting because of migratory flows, which has been dominant theme in the last 18 months or so. Some observers say some of what we’ve seen from Syria is climate related and that it may not have erupted the way it did without a series of droughts.”

Indeed, there is still more research to be done to fully understand the connections between climate change, fossil fuel dependence and country risk. These are the issues Global Footprint Network is exploring with nine financial institutions who have joined our Working Group on Carbon Disclosure in Sovereign Bonds. Our new report is due to launch this month.

As Global Footprint Network continues to partner with organizations like S&P and UNEP FI to explore such issues, we are also advancing the discussion on sovereign bonds in other fora. On Nov. 11, Burns will be speaking at the SRI (Socially, Responsible, Impact Investing) Conference in Denver on how investors can better integrate climate change into their investment portfolios.

Through these discussions, we aim to keep the spotlight on sovereign bonds and help transform the financial system so that climate change and resource constraints are better integrated by investors exposed to country level risk.