Climate Action

Anticipating climate change risks on sovereign bonds

How could sovereign bonds be affected by climate change risks? Focusing on assessing the macroeconomic impacts related to climate change, FTSE Russell Research delve into two “worst case” scenarios.

  • 23 March 2021
  • FTSE Russell Research

The deep economic changes necessary to achieve the Paris Agreement objectives require a consistent reallocation of resources. This gives the financial sector a key role in tackling climate change. Risk analysis is important in that perspective.

Due to the nature of climate change, with unprecedented and non-linear, dynamics, relying on historical data is not sufficient to anticipate climate change risks. This paper proposes a methodology for a forward-looking assessment of climate risks as recommended by regulating international institutions.

This paper is the first of a two-part study whose objective is to explore how sovereign bonds could be affected by climate change risks—it focuses on assessing the macroeconomic impacts related to climate change. Two “worst case” scenarios (similar to current trends, though) are explored.

To read the full research paper click here.

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