Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness

• 成果类型: Article
• 署名作者: Klusak, Patrycja; Agarwala, Matthew; Burke, Matt; Kraemer, Moritz; Mohaddes, Kamiar
• 署名单位: University of East Anglia; University of Cambridge; University of East Anglia; Yale University; University of Oxford; Goethe University Frankfurt; University of Cambridge; University of Cambridge
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4869
• 发表日期: 2023
• 页码: 7468-7491
• 关键词: sovereign credit rating; climate change; Counterfactual analysis; climate-economy models; Corporate debt; Sovereign debt

摘要

Enthusiasm for greening the financial system is welcome, but a fundamental challenge remains: financial decision makers lack the necessary information. It is not enough to know that climate change is bad. Markets need credible, digestible information on how climate change translates into material risks. To bridge the gap between climate science and real-world financial indicators, we simulate the effect of climate change on sovereign credit ratings for 109 countries, creating the world's first climate-adjusted sovereign credit rating. Under various warming scenarios, we find evidence of climate-induced sovereign downgrades as early as 2030, increasing in intensity and across more countries over the century. We find strong evidence that stringent climate policy consistent with limiting warming to below 2 degrees C, honoring the Paris Climate Agreement and following representative concentration pathway (RCP) 2.6, could nearly eliminate the effect of climate change on ratings. In contrast, under higher emissions scenarios (i.e., RCP 8.5), 59 sovereigns experience climate-induced downgrades by 2030, with an average reduction of 0.68 notches, rising to 81 sovereigns facing an average downgrade of 2.18 notches by 2100. We calculate the effect of climate-induced sovereign downgrades on the cost of corporate and sovereign debt. Across the sample, climate change could increase the annual interest payments on sovereign debt by US$45-$67 billion under RCP 2.6, rising to US$135-$203 billion under RCP 8.5. The additional cost to corporations is US$10-$17 billion under RCP 2.6 and US$35-$61 billion under RCP 8.5.