The ND readiness index shows an upward trend since 1995 based on improvements in economic, governance, and social readiness. This observation is particularly evident for the ECA region, followed by MENA (Figure 6D and E). In contrast, countries in the most vulnerable region, EAP, do not seem, on average, to get more resilient to extreme climate shocks, as their ND readiness indicator remained flat for the period under study.

# _Transition risks – high carbon intensity_

Countries with a large carbon footprint face significant transition risks arising from the move towards low‐ carbon economies. We use CO2 emissions intensity (kg per kg of oil equivalent energy use) from the World Development Indicators to track countries’ exposure to transition risks.

Countries’ exposure to transition risks, as measured by their CO2 emissions intensity, has hardly changed since 1995. The data on CO2 emissions show that between 1995 and 2014, median CO2 intensity across countries has been fairly stable (Figure 7A and B). Moreover, MENA appears to be the most exposed, but its CO2 intensity declined over time. In particular, Jordan and Morocco face high transition risk. Many economies in the region try to diversify their economies, even though they are still heavily dependent on hydrocarbons.

Whereas countries in the MENA and in ECA reduced their carbon footprint in the past 20 years, those in Asia (both Eastern and Southern) increased their CO2 emissions (Figure 7B). Yet, for some countries in ECA, such as Poland and Kazakhstan, transition risk has increased over time.

# _Transition risks – fossil fuel exporters_

Fossil fuel export dependent economies face particularly significant transition risks. Global efforts to reduce GHG emissions and fossil fuel consumption will affect demand and prices of fossil fuels. Revenue from fossil fuels is the main source of revenue for many fossil fuel exporters which thus face significant fiscal risks. The MENA region is the most exposed while dependence is rising for some countries in the ECA region (Figure 7D). Diversification away from fuel exports will become more urgent, bringing additional challenges and uncertainties to these economies. In our analysis, we use the ratio of fossil fuel exports to GDP as the indicator for this type of transition risk.

# _Macro‐financial conditions_

We analyze macro‐financial conditions using the EIU country risk index and its subcomponents (macroeconomic, banking, and sovereign debt). The EIU Country Risk Index is part of the EIU Country Risk Model and measures the build‐up of sovereign, currency, and banking risks in 131 countries since 1997, using 77 quantitative and qualitative variables. In each category, countries are assigned a score from 0 to 100, where 0 is the lowest risk and 100 is the highest risk.<sup>13</sup>

# _Linking climate and macro‐financial risk measures_

This section highlights countries and regions that face the double jeopardy of elevated macro‐financial and climate related risks. We discuss the results for the four main categories of risks. Countries are classified as being at higher macro‐financial or climate‐related risk if they are above the sample median for the particular climate‐related or macro‐financial indicator. We also examine systematic relations

> 13 Using the MFR indices of macro‐financial risks yields broadly similar results. However, due to the confidentiality of these ratings these results are not shown in this paper.

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