Here's how debt is fueling global warming: The volatility of the value of debt and debt-service payments make it much harder for developing countries to invest in things that might blunt the impact of climate change.
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“The big picture here is that the climate crisis is an economic crisis, it’s a long-term economic crisis for the developing world,” Ray said. But the debt itself can also be an obstacle to combating climate change. Often in disasters, wealthy investors will flee emerging markets, causing the value of their currency to plummet and the cost of their debt, which is typically in dollars, to rise, Ray said. In addition, developing countries may struggle to find buyers for their exported goods during these periods.
These combined forces of debt and climate change represent “a systemic risk to the global economy,” that could exacerbate “climate and nature vulnerabilities,” the IMF and the World Bank warned earlier this year, according to a New York Times report. Economists and policymakers have offered some proposals to deal with these challenges, including rethinking the debt obligations altogether. As part of a January executive order, the White House said it would create a strategy for how “the voice and vote of the United States” in international institutions could be used to push for debt relief that’s tied to meeting climate change goals.
Despite the industry’s growth, we don’t have a good understanding of how these companies are making lending decisions and how much money they’re handing out, which could pose a risk to investors, analysts from Fitch Ratings wrote in a recent report. That’s because for the most part, the sector is made up of private companies and they aren’t reporting their data to credit agencies.
In reality though, “it appears that the key differentiating factor for BNPL products versus traditional lending is lighter regulation,” the note reads. “Providers therefore have more discretion in the design of the underwriting process and may not perform certain steps that would be required for fully regulated loans.”
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