PHL trails Asean peers in tackling environmental risk
THE Philippines scored the poorest in the region in terms of handling potential environmental risks, something that an international think tank said could hurt its credit profile with its potential adverse impact on the economy, on public finance or balance of payments.
In its most recent assessment of the Environmental, Social and Governance (ESG) standing of all its rated economies, international credit watcher Moody’s Investor Service said the Philippines has the lowest Environmental Issuer Profile Score in the Asean-5 bloc.
The Environmental Issuer Profile Score is a rating based on Moody’s qualitative assessment of five environmental factors along with any measures taken or firmly planned by the government to mitigate them. The five factors include: physical climate risk, carbon transition, water management, natural capital, and waste and pollution.
The scoring scale is on a range of 1 to 5, with 1 being the least at risk and most addressed and 5 being the most at risk and least addressed.
Moody’s gave the Philippines an E-4 score, which means “Highly Negative” on the scale.
The Philippines’s peer countries Indonesia, Thailand, Malaysia and Vietnam all scored an E-3, which is “Moderately Negative,” while Singapore scored E-2, which is “Neutral to Low”.
Broken down, physical climate risk is the largest environmental risk and least addressed in the country, which was scored a 5 or “Very Highly Negative”.
The Philippines’s water management, natural capital and waste and pollution risks all scored a 3 or “Moderately Negative” while its Carbon Transition is at 2 or “Neutral to Low”.
What it means
For example, if an economy like the Philippines is prone to flooding, this will create economic and social costs. These economic and social costs are bound to be aggravated by the country’s low incomes and infrastructure quality.
“Sensitivity to climate hazards is also an important determinant of our scores and ultimately credit impact. For example, an economy which is reliant on weather-dependent activities such as agriculture and tourism will be more vulnerable to typhoons than one where the bulk of economic output comes from factories and offices,” Moody’s said.
“The effect of physical climate risk can be material from a credit perspective if it has a negative and durable effect on the economy, the government finances or the balance of payments,” it added.
In its latest assessment of the Philippine sovereign ratings just last month, where it affirmed the country’s Baa2 rating with a stable outlook, Moody’s already flagged the country’s environmental exposure and its potential threat to the economy if not addressed early on.
“Environmental considerations are material to the Philippines’s credit profile, given the high incidence of climate-related disasters, as well as the relatively large, albeit declining, share of the labor force employed by the agricultural sector,” Moody’s earlier said.
“Overall, the severity and frequency of extreme weather events can increase the Philippines’s GDP growth volatility, as well as public expenditure due to costs associated with reconstruction or rehabilitation,” it added.