Oxford Martin School’s Post

Climate change poses significant risks to financial stability, taking a toll on sovereign finances, especially in emerging and developing economies, which are often the most vulnerable to climate change and already face high levels of debt. This creates a 'climate investment trap': increased debt from climate disasters limits investments in adaptation and resilience, further raising future risks. A new discussion paper, authored by Mark Bernhofen, Matt Burke, Akaraseth Puranasamriddhi, Dr Nicola Ranger, and Gireesh Shrimali, explores how climate risks and adaptation can be integrated into sovereign credit ratings. By linking catastrophe modelling with a macroeconomic model and a credit rating model, the paper shows that failing to account for these risks leads to mispriced debt with implications for financial stability. Incorporating adaptation efforts into ratings could break this cycle, drive smarter investments, and improve financial resilience. Read the authors' blog on this research: https://lnkd.in/eNdzXxR6 Read the full discussion paper: https://lnkd.in/ePjHDRP3 Resilient Planet Finance Lab @UniofOxford Smith School of Enterprise and the Environment - University of Oxford Oxford Sustainable Finance Group Oxford Martin School #ClimateRisk #SovereignDebt #CreditRatings #ClimateAdaptation #FinancialStability