Climate change a key issue for Asia Pacific: S&P

Alongside the effects on societies of their aging populations, the impact of climate change, specifically global warming, will put downward pressure on sovereign ratings, the report states.

In S&P's ranking, all of the 20 most-vulnerable nations are emerging markets, and many of them are in Asia-Pacific, with Vietnam, Bangladesh, Fiji, the Philippines, Papua New Guinea, and Indonesia among the list of nations in the bottom 10 places.

"Their vulnerability is in part due to their reliance on agricultural production and employment, which can be vulnerable to shifting climate patterns and extreme weather events, but also due to their weaker capacity to absorb the financial cost."

Key points from the report: 

-Climate change will be one of the global mega-trends impacting sovereign creditworthiness, in most cases negatively.

-The impact on creditworthiness will probably be felt through various channels, including economic growth, external performance, and public finances.

-Sovereigns will probably be unevenly affected by climate change, with poorer and lower rated sovereigns typically hit hardest, which could contribute to rising global rating inequality.

Extreme weather events, such as tropical storms or floods, seem to have been on the rise since the early 1980s.

Data collected by MunichRe, a reinsurer, suggest that weather-related loss-events have risen in all continents, most significantly in Asia and North America, where they increased more than fourfold. In Eastern Asia overall losses (insured and non-insured) used to be below US$10 billion per year, but have regularly surpassed US$20 billion during the last decade, with a peak of over US$50 billion. Typhoon Haiyan hitting the Philippines in November 2013 has been a powerful and hugely destructive reminder of this trend.

S&P has not yet revised the rating of a sovereign as a consequence of an extreme weather event.

"We have taken a view that the size of devastation, while large in absolute terms, has not been sufficient to impact a rating overall. However, assuming that extreme weather events are on the rise in terms of frequency and destruction, how this trend could feed through to our ratings on sovereign states bears consideration."

To measure the degree to which economies are exposed to the risks, it has created a composite of three different variables and arrive at a vulnerability ranking for the 116 sovereigns that it rates.

The three variables are: Share of the population living in coastal areas below five meters of altitude, share of agriculture in national GDP, plus the vulnerability index compiled by Notre Dame University Global Adaptation Index (ND-GAIN), which measures the degree to which a system is susceptible to, and unable to cope with, adverse effects of climate change.

Most of the 20 least-vulnerable nations are advanced economies, with Luxembourg, Switzerland, and Austria at the top.