Report: Climate change and sovereign risk

This joint report provides a comprehensive analysis of the ways in which climate risks affect sovereign risk, demonstrating new empirical evidence of how climate risk and resilience influence the costs of capital. It also explores the implications for Southeast Asia in particular, where countries are highly exposed to climate change risks and their economic consequences.

Lastly, the report outlines five policy recommendations based on these findings:

1. Governments need to conduct a comprehensive vulnerability assessment and develop national adaptation plans.
2. Based on the vulnerability assessment, governments need to mainstream climate risk analysis in public financial management.
3. Central banks and financial supervisors need not only play an important role in supporting governments in analyzing macrofinancial risks arising from climate change. They also need to address climate-related risks in their monetary and prudential frameworks and operations.
4. Governments and financial authorities should implement financial sector policies to scale-up investment in climate adaptation and resilience and develop insurance solutions.
5. International financial institutions—including the IMF, multilateral development banks, and regional financing arrangements—have a special role to play in supporting vulnerable countries to address climate-related sovereign risks and strengthen adaptive capacity and macrofinancial resilience.