“Climate Change and Sovereign Risk”

Ulrich Volz presented the report on “Climate Change and Sovereign Risk” he co-authored with John Beirne, Natalie Ambrosio Preudhomme, Adrian Fenton, Emilie Mazzacurati, Nuobu Renzhi, and Jeanne Stampe. From the introduction:

This report provides a timely and very comprehensive assessment of the role played by climate change on sovereign risk. In particular, a number of transmission channels through which climate change affects sovereign risk are discussed in the report: the fiscal impacts of climate-related natural disasters, the fiscal consequences of adaptation and mitigation policies, the macroeconomic impacts of climate change, the impacts of climate risk on financial sector stability, the international trade and capital flow dimension, and the impact of climate change on political stability. The report provides a thorough examination of how these transmission channels apply to the economies of Southeast Asia, and shows that there are substantial risks for the majority of Southeast Asia from a macrofinancial stability perspective. As well as this, the report provides new empirical estimates on the impact of climate vulnerability on sovereign risk, with vulnerability to climate change in the economies of the Association of Southeast Asian Nations (ASEAN) being associated with sovereign bond yield premia of around 155 basis points on average. Countries with higher exposure to climate risks are shown to incur even higher premia on their sovereign borrowing costs.