Activv Fiscal Resilience ratings will value climate and nature data, sustainable infrastructure, and localized economic diversification.

With climate impacts projected to cost tens of trillions of dollars in the coming decades, and food systems already estimated to have cost more than $142 trillion in just over 9 years, all regions and industries need to insights into emerging climate risks. With the world’s highest court finding unanimously that all governments are legally obliged to act on climate, structural climate risk is set to become an everyday part of the business environment. Those that compete most effectively will avoid risk and find favor with consumers; those that fail to account for hidden costs will be downgraded by climate-sensitive ratings and by market incentives. 

The United States has seen disaster costs spiraling upward over the last four decades. From 1980 to 1989, the U.S. spent around $220 billion on all natural disasters costing $1 billion or more, combined. Between mid-2024 and January 2025, the U.S. experienced two disasters—Hurricane Helene and the Los Angeles fires—that are each projected to cost $250 billion over time. Some small island countries have experienced devastating storms that cost 20%, 50% or even 100% of GDP. 

In northern Nigeria, where chronic aridity and desertification pose increasing risks to herding and farming communities, climate impacts are leading to armed conflict and mass displacement. This situation has impacts on the whole country, including on the politics of local and national elections, foreign investment, trade, and everyday development. Such effects of climate degradation also affect stability in the wider region. 

The long-term fiscal stability of countries at all levels of income is in question—both from the rising burden of sovereign debt and from the proliferating, and compounding, costs of climate change and nature breakdown. The Financial Stability Oversight Council (FSOC) and the Commodity Futures Trading Commission (CFTC)—two of the most important financial regulators in the U.S.—have found that unchecked climate change will destabilize the financial system and prevent it from supporting the mainstream economy. This is not alarmism; it is basic arithmetic.

One haunting finding from the 2023 State of the Climate Report, which we will cite repeatedly for context and to distill numerous other insights, is: 

By the end of this century, an estimated 3 to 6 billion individuals — approximately one-third to one-half of the global population — might find themselves confined beyond the livable region, encountering severe heat, limited food availability, and elevated mortality rates because of the effects of climate change (Lenton et al. 2023).

It is not a stretch to say that in such a world—with 3 to 6 billion people unable to live where they find themselves, needing to move in order to sustain the lives of their families and communities—stability of even wealthy, industrialized nation states will be elusive. We may not have anything like the structured international order we have been used to or the ability to project national circumstances for decades at a time.

What is in question now is whether any government is doing enough to reduce fiscal strain and build resilience. This is the core question behind the Activv Fiscal Resilience assessment. Some of the ingredients of the overall Fiscal Resilience rating are:

• Experienced climate impact vulnerability 
• Emerging climate impact vulnerability 
• Diversity of value chains (trade relationships, secondary industries, local sustainable development investments)
• Logistics and infrastructure
• Strategic utilization of Earth science insights—climate, ecosystems, biodiversity, water, wind, and weather
• Coastal resilience and other landscape resilience metrics
• Watershed health, resilience, maintenance, and regeneration
• Climate-sensitive debt management and green finance outlook

A country with a low Fiscal Resilience score might find its overall rating boosted, if it is taking action in collaboration with others to improve on some of the key elements of climate-related fiscal pressure. A nation that is a major contributor to climate disruption, while underinvesting in data, solutions, and international cooperation, will have a low score, even if it is able, for the time being, to derive important revenues from climate-polluting practices. 

Fossil fuel dependency is a losing strategy over the long term, as 1) the International Court of Justice has found the law already aligns with climate science, so 2) rogue nations might be barred from selling fossil fuels internationally, and 3) the efficiency gains of clean energy systems are already creating unprecedented market pressure. Fossil fuel producers will have to find ways to reduce production while not losing revenues. One option is to earn more per unit during the transition; another is to rapidly shift to clean sources of revenue and move to a new kind of competitive advantage and expanded value creation. 

These are no longer the wishes of advocates. These are the emerging market conditions for all competitors, across the public and private sectors. Governments should be judged for their fiscal wisdom based on how well they:

1. reduce clmate-related risk, 
2. eliminate fossil fuel dependency, 
3. institute climate-sensitive debt management strategies,
4. build and maintain future-oriented hard and soft infrastructure, and 
5. coordinate with other nations and with subnational jurisdictions to thrive in a climate-smart economy.

Diversification of national and local economies will require not only the opening up of new industries and the introduction of new business models. It will require the opening up of high-quality data and technology to smaller-scale actors and underserved communities. The faster those left out of the mainstream financial economy can be incentivized to deliver climate and nature benefits, the faster a country can shift to a sustainable future economic development strategy.

We note the Network for Greening the Financial System (NGFS)—a cooperative effort of central banks to strategize fiscal stability in a climate-stressed world—outlines four long-term scenarios all nations might have to navigate. Each of the four scenarios entails fiscal pressures related to both physical impact risk and transition risk: 

• Orderly scenarios assume climate policies are introduced early and become gradually more stringent. Both physical and transition risks are relatively subdued.
• Disorderly scenarios explore higher transition risk due to policies being delayed or divergent across countries and sectors. For example, (shadow) carbon prices are typically higher for a given temperature outcome.
• Hot house world scenarios assume that some climate policies are implemented in some jurisdictions, but global efforts are insufficient to halt significant global warming. The scenarios result in severe physical risk including irreversible impacts.
• Too little, too late scenarios assume that a late and uncoordinated transition fails to limit physical risks.

Two of the major threats the NGFS was established to deal with are: 

• The nonlinear, compounding nature of climate-related threats, which because they move through a planet-wide fabric of energy exchange, affecting the entire biosphere, slow-growing and traceable or sudden-onset and hard to prepare for, even when they move through established market dynamics; 
• The risk that climate disruptions will become irreversible, as there is currently “no mature technology” known to be able to effectively reverse significant long-range changes to atmospheric composition, driving the greenhouse effect. “Above a certain threshold,” the NGFS warns, “scientists have shown with a high degree of confidence that climate change will have irreversible consequences on our planet.”

The NGFS also notes the integrated and holistic nature of the climate challenge, echoing in advance the recent findings of the landmark ICJ advisory opinion: 

While the NGFS initially focused on addressing climate goals, the interdependencies between climate, biodiversity, and other planetary boundaries have made it clear that the resilience of the financial system relies on a holistic approach. 

One of the challenges for national governments, beyond core fiscal stability and the nonlinear, compounding, and pervasive risks, and potentially irreversible effects, is that fiscal impacts may be unevenly distributed throughout the national geography and over time. Some cities, regions, and nations, will experience high-cost impacts in the coming years; others will see them more indirectly until cumulative effects take over, or will see shock events later in the process of global climate disruption. 

Understanding fiscal resilience in this broader context of macrocritical dynamics—which shape the whole economy and the overall availability of health, security, freedom, and thriving—is vital for assessing what steps need to come next to reduce risk and harm, and make a livable future possible.

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Published Wed, July 30, 2025, at ActiveValue.org