Natural debt threatens the world economy, experts fear

Telegraph, By Geoffrey Lean

Will the next financial crisis be caused by environmental stress? It might seem, on the face of it, to be an unlikely prospect – but it proved a real enough risk to draw hundreds of experts from top financial institutions to a conference in the City of London this week. Hosted by Bloomberg – and sponsored by the French group Caisse de Dépôts, the German bank KfW Bankengruppe and the Swiss MAVA Foundation – it examined “to what extent natural resource risks can impact a country’s economy and, thus, its ability to pay its debts.”

Sovereign bonds used to be thought of as virtually risk-free before the financial crisis hit in 2008. They have looked less so since. But a report for this week’s conference argued that one major area of risk was still being neglected – the decline of the natural world as both population and levels of consumption increase.

“Natural resources – both renewable, biological resources such as food and fibre, and non-renewable resources such as fossil fuels, ore and minerals – are critical to each nation’s economy”, says the report, produced by the Global Footprint Network, a California-based think tank, and the United Nations Environment Programme (UNEP) Financial Initiative.

“Yet, to date, risks stemming from renewable resources, in particular, are not well considered in sovereign credit risk assessments. As resource constraint tighten globally, countries that depend, in net terms, on levels of renewable natural resources and services beyond what their own ecosystems can provide may experience profound economic impacts as resources become more unreliable or costly.”

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