Webinar: Disentangling the impacts of climate risks on sovereign creditworthiness
Feb 15, 2023
With the effects of climate change becoming more visible each day, the implications for economic activity and public finances are set to intensify. As the risks and costs associated with climate change and the green transition begin to weigh on the creditworthiness of countries, a better understanding of the relevant channels, timescale and extent of these risks becomes important for the accurate assessment of sovereign credit risk.
Climate risk indices are a useful tool to understand the impact of climate change on countries, but somewhat surprisingly, they do not seem to be reflected in sovereign credit ratings. There is some evidence, though, that climate risks are relevant for the valuation of longer-term sovereign bonds. This suggests that the growing impacts of global heating and the build-up of transition risks are not yet fully reflected in credit ratings.