Climate Change and Sovereign Risk

Climate Change and Sovereign Risk provides a comprehensive analysis of the ways in which climate risks affect sovereign risk. New empirical evidence demonstrates how climate risk and resilience influence the cost of sovereign borrowing, with econometric analysis showing that higher climate risk vulnerability leads to significant rises in sovereign bond yields. The report provides a closer look at Southeast Asia, a region with significant exposure to climate hazards such as storms, floods, sea level rise, heat waves, and water stress. It explains that the implications of climate change for macrofinancial stability and sovereign risk are likely to be material for most, if not all, countries in Southeast Asia.

The report also stresses the need for governments to climate-proof their economies and public finances or potentially face an ever-worsening spiral of climate vulnerability and unsustainable debt burdens. It urges financial authorities to integrate climate risk into their risk management processes. It also encourages governments to prioritize comprehensive climate vulnerability assessments and work with the financial sector to promote investment in climate adaptation.

The report was co-published by SOAS University of London, ADBI, the World Wide Fund for Nature, and Four Twenty Seven.