Matt Burke (University of Sheffield and University of Cambridge climaTRACES Lab) will be presenting his work on “Climate Policy and Sovereign Debt: The Impact of Transition Scenarios on Sovereign Creditworthiness”
About this session: This paper links climate science with sovereign risk assessment to produce a single forward-looking measure of country-level climate change risk. We combine the Network for Greening the Financial System (NGFS) climate scenarios with a sovereign credit ratings model to simulate the impact of climate change on credit ratings, cost of debt and probability of default. For the first time, we extend beyond the physical risks of extreme weather events to explicitly incorporate risks associated with transitioning the global economy towards Net Zero. Across the sample of 48 countries and under a scenario of high (low) physical and transition risks, we find average downgrades of 3.9 (2.7) notches and mean increases in the cost of debt of 123 (76) basis points and default probability of 10.4% (6.2%). Counter-intuitively, ratings, default probability, and cost of debt appear insensitive to scenarios in some countries, with important implications for the usefulness of NGFS scenarios across central banks. You can read the paper here.
When: Monday 24th of March
12.30-12.45 Light lunch and networking
12.45-14.00 Talk and Q&A.
Where: CRASSH meeting room (Alison Richards Building) on the Sidgwick site.
Lunch: A light lunch will be provided, but bring along your drink of choice!
Zoom: You can also join us virtually on Zoom.
The weekly climaTRACES workshops, organised by Kamiar Mohaddes and Henning Zschietzschmann, are attended by a diverse group of people from economics, geography, politics, engineering, business, earth sciences, natural sciences, and history, generating interdisciplinary discussion. One person leads the session, on either a paper they have written, a work in progress, or just an idea they have and would like feedback on. This is also an opportunity for people to find our more about the team on what climaTRACES have been up to and what future events and research projects are being developed.
