Work

Does climate change affect sovereign credit risk? International evidence

Year: 2023

Type: article

Abstract: This paper fills a crucial research gap by investigating the connection between climate change and sovereign credit risk. While the economic implications of climate risk have long been acknowledged, limited attention has been given to understanding its impact on sovereign credit risk. To address this gap, we provide novel empirical evidence on the influence of climate change readiness and vulnerability on sovereign credit default swaps (SCDS). Utilizing a panel quantile regression approach, our study reveals the following key findings: (i) Climate change readiness harms SCDS spreads across all quantiles; (ii) Climate change vulnerability positively affects SCDS spreads, except for the extreme upper quantile; and (iii) The relationship between climate change readiness and SCDS spreads is particularly pronounced in higher quantiles. By shedding light on these relationships, our analysis offers fresh insights into the intricate dynamics between climate change and sovereign credit risk.

Source: Borsa Istanbul Review

DOI: 10.1016/j.bir.2023.10.001

Author: Nader Naifar

Institution: Imam Mohammad ibn Saud Islamic University

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: gold

Estimated APC paid: $1,500