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

气候变化 降级 经济 主权信用证 减缓气候变化 自然资源经济学 业务 财务 信用违约掉期 信用风险 生态学 计算机安全 计算机科学 生物
作者
Patrycja Klusak,Matthew Agarwala,Matt Burke,Moritz U. G. Kraemer,Kamiar Mohaddes
出处
期刊:Management Science [Institute for Operations Research and the Management Sciences]
卷期号:69 (12): 7468-7491 被引量:67
标识
DOI:10.1287/mnsc.2023.4869
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 °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. This paper was accepted by Colin Mayer, Special Section of Management Science on Business and Climate Change. Funding: M. Agarwala, P. Klusak, and M. Burke acknowledge funding from the International Network for Sustainable Financial Policy Insights, Research and Exchange (INSPIRE). M. Agarwala also acknowledges funding from The Wealth Economy Project. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4869 .
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