Analysis of the nexus between country risk, environmental policies, and human development

Abstract

[EN] There is currently a two-way link between financial risk and climate change. International agreements on climate change involve more sustainable practices regarding the use of renewable energy and the removal of greenhouse gas (GHG) emissions, to which end there is a need for good access to finance. The aim of this research is to carry out an in-depth analysis of said relationship in order to provide decision-makers with additional information to guide the development of the most appropriate policies for each territory. First, the analysis focuses on whether economic and financial capacity is a sufficient and necessary condition for the implementation of pro-climate policies, using a sample of 55 countries spanning all continents. Second, this paper proposes a synthetic index that can be used to jointly assess climate change and country risk, before then determining whether the position reached by a country with respect to the index is similar to its relative level of human development. The research draws on the Climate Change Performance Index, Country Risk Score and Human Development Index, all cor-responding to 2018. The results show that good performance in tackling climate change requires adequate economic and financial capacity, although this alone is not sufficient. The USA, Canada and Australia enjoy an economically advantageous position and yet they need to intensify their efforts in terms of policies that support the electricity supply from renewable energy and the reduction of GHG emissions. It is also concluded that good living conditions help drive climate change action and financial market access.