Climate change can have a material impact on sovereign risk through direct and indirect effects on
public finances. It raises the cost of capital of climate-vulnerable countries and threatens debt
sustainability. Governments must climate-proof their economies and public finances or potentially
face an ever-worsening spiral of climate vulnerability and unsustainable debt burdens.
This study focuses on the complex nexus between climate change and sovereign risk, identifying and
scrutinizing six transmission channels through which climate change can amplify sovereign risk and
worsen a sovereign’s standing.
Volz, U;et al.
SOAS University of London
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