Climate Crisis in LatAm: The effects on the region sectors

The risk rating agency Moody’s launched a new alert for the different economies of the world, especially for Latin America. Due to the effects that climate change is generating and the impacts that it could have for the industries of the different nations,  both urban as well as rural sectors are in great danger. Latin America and the Caribbean face multiple risks that are increasingly frequent due to climate change: rising sea levels, fires, droughts, floods and unprecedented extreme weather events.

Barbara Mattos, senior vice president of this risk agency, assured that global warming and other direct environmental risks derived from climate change will get worse and worse and will affect credit quality in various geographic regions and sectors. For this reason Latin America should start taking action now.

“The physical risk of climate change in Latin America is particularly significant for industries with fixed assets, such as mining, oil and gas, ports and utilities. Extreme weather events in the region most frequently affect operations or supply chains in sectors such as logistics and infrastructure, agriculture, mining, fishing, energy, utilities and telecommunications” 

This report highlights that in the case of Colombia  it faces the growing risk of alterations in ocean  Ssnce the country generates around 72% of its electricity from hydroelectric power. Its public services are significantly exposed to climatic events that affect precipitation levels, such as La Niña and El Niño.

Climate Change Impacts in Latin America | WWF

Likewise, it stands out that the exposure of the loan portfolio of Colombian banks to the agricultural industry is greater than that of their Peruvian peers but less than that of Brazil or Argentina. It is a situation that cannot be taken lightly since the main effects of climate change will be felt in the rural sector.

In Brazil, climate change poses a threat to crops and could imply losses for agricultural and protein production. Geographic diversification reduces that risk. Water stress represents the main risk for public services,  since Brazil generates around 67% of its electricity from hydroelectric power. On the other hand high investments in transmission and alternative renewable energies alleviate systemic risk.

“Droughts represent a high risk for agricultural producers in Mexico, since they affect the corn harvest: the country’s main crop. Other water-intensive industries, such as beverage producers will face higher costs due to increasing water scarcity and drought. Also oil companies in Mexico and the Caribbean are highly exposed to hurricanes” the report adds.

Water stress complicates mining, agricultural and hydroelectric operations in Chile. Mining also faces risks from rising rainfall and sea levels, while extreme temperatures threaten labor productivity and electrical infrastructure.

“Changes in the level of precipitation, heat waves and droughts alter the production and trade of grains in Argentina, one of the main grain producing countries in the Americas.   The electricity companies are exposed to spot prices. Chilean banks have low exposure to loans for the agricultural and mining industry, but agriculture represents almost 13% of the total portfolio of Argentine banks.

This risk rating agency assured that, although for the moment the effects of climate change are bearable, it is necessary for the countries of Latin America and the Caribbean to take action against phenomena such as global warming and pollution. The Region should develop strategies to attend to any emergency that may arise due to these scourges, especially in the rural sector.