Physical Climate Change Risks and the Sovereign Creditworthiness of Emerging Economies

Boehm, Hannes

doi:10.2139/ssrn.3663846

Cited by 2 publications

(1 citation statement)

References 40 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Thus far, however, the literature has focused predominantly on whether environmental, social and governance (ESG) achievements affect sovereign bond yields (e.g., Berg et al 2018, Capelle-Blancard, Crifo, Diaye, Oueghlissi and Scholtens 2019, Hubel 2020) and currency returns Cheema-Fox, Serafeim and Wan 2021). Sovereign credit ratings and debt market outcomes are also shown to be affected by rising temperatures (Bohm, 2021). Kling, Lo, Murinde and Volz (2019), who examine the response of sovereign bond yields to climate change vulnerability represents one of the first analyses of the links between climate change vulnerability and sovereign bonds.…”

Section: Introductionmentioning

confidence: 99%

Do Financial Markets Price Risks to Climate Change?

Das

2022

rfm

View full text Add to dashboard Cite

Financial markets represent a powerful means to incentivize governments and corporates to take action against climate change. When climatic risks are reflected in the valuation of financial instruments, firms and governments acting in their own self-interest will reorient decisions toward climate-friendly activities. While the literature has found scant evidence that climate change risks are priced into equity share prices, recent work suggests that climate risks are priced into sovereign bonds. I re-examine the link between climate change and sovereign bonds and find that, as with share prices, sovereign bonds do not price in a climate risk premium. This paper thus resolves the anomalous finding that investors would demand a climate risk premium from sovereign bonds but not stocks. I find that, by virtue of their construction, measures of climate change vulnerability and resilience are highly rigid over time, and thus empirically capture country-specific risk premia rather than a climate-specific risk premium.

show abstract

Section: Introductionmentioning

confidence: 99%