Decoding climate-related risks in sovereign bond pricing: A global perspective

Sofia Anyfantaki (), Marianna Blix Grimaldi (), Carlos Madeira, Simona Malovana () and Georgios Papadopoulos
Additional contact information
Sofia Anyfantaki: European Central Bank
Marianna Blix Grimaldi: Financial Stability Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Simona Malovana: Czech National Bank

No 453, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Climate change poses a major risk to financial stability by affecting sovereign credit risk through transition and physical risks. Using data from 52 developed and developing countries over two decades, the study finds that transition risk leads to higher sovereign yields, especially in developing and high-emission countries post-Paris Agreement. Physical risks, such as temperature anomalies, generally aren’t priced in, but high debt levels amplify yield increases during acute climate events. Medium-term projections show varied sovereign yield responses to different climate disasters, with the effects differing by income level and fiscal space, highlighting the complex financial impact of climate change.

Keywords: Climate risk; sovereign risk; transition risk; temperature change; natural disasters (search for similar items in EconPapers)
JEL-codes: C23 E62 H63 Q54 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2025-07-01
New Economics Papers: this item is included in nep-env and nep-inv
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Working Paper: Decoding climate-related risks in sovereign bond pricing: a global perspective (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0453

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