S & P Updates Rating Approach Following COP29 Outcomes In Azerbaijan

(MENAFN- AzerNews) Akbar Novruz Read more

Following the conclusion of COP29 in Azerbaijan, S&P Global Ratings has introduced an updated rating approach to reflect emerging market trends and address transparency in new financial mechanisms, such as debt-for-nature swaps and payment deferrals for countries vulnerable to natural disasters.

According to Azernews , citing the S&P report, these instruments aim to ease the fiscal burden of countries with limited financial resources, allowing them to focus on building economic resilience and climate adaptation.

Analysts noted, "Even small or temporary debt relief could allow vulnerable countries to focus more resources on improving economic resilience and adapting to climate change."

The report highlights a rise in sustainable debt issuance across emerging markets, particularly in local currencies. However, it underscores that low-income nations continue to struggle with accessing climate finance without exacerbating their debt burden.

A key outcome of COP29 was the agreement to mobilize $300 billion annually from public and private sources for climate finance-three times the previous target. S&P views this as a significant step toward establishing functional global carbon markets but cautions that success depends on national commitments, private investment mobilization, and multilateral lending institution support.

The report warns that failing to meet climate finance needs could heighten long-term economic and social risks. Developing countries disproportionately exposed to climate hazards risk becoming major carbon emitters unless their economic growth aligns with low-carbon technologies.

S&P anticipates countries will revise their Nationally Determined Contributions (NDCs) and adaptation plans post-COP29, focusing on medium- and long-term targets for climate resilience. The agency also stressed that more ambitious fiscal targets could drive transformative economic strategies in developing nations.

These include insufficient institutional support (due to continued geopolitical uncertainty and changing national strategies), lack of standardized blended finance mechanisms, and insufficient risk mitigation tools to attract private capital. According to the agency's sustainable finance specialists, addressing these barriers will be an important step toward achieving sustainable development goals and net-zero emissions.

Addressing barriers, such as insufficient institutional support, lack of standardized blended finance mechanisms, and limited risk-mitigation tools, will be critical for attracting private capital. S&P experts emphasized that "COP29 was a significant milestone in advancing climate initiatives, but achieving the goals will require significant efforts and coordination between countries and the private sector."

The agency's updated approach confirms the growing role of sustainable finance in the global economy, signaling that climate resilience and net-zero commitments are now central to economic stability and development strategies.

By incorporating mechanisms like debt-for-nature swaps and emphasizing climate finance, S&P's updated rating approach is a crucial step in ensuring that financial markets respond to the needs of vulnerable economies.

It not only helps free up fiscal space for critical investments but also aligns global financial systems with sustainability goals, fostering greater economic stability and resilience against climate risks.

MENAFN19122024000195011045ID1109011979