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Climate change exposure and global sovereign credit risk

Author

Listed:
  • Pan, Chu
  • Sun, Chentong
  • Zhang, Yue
  • Li, Yanshuang
  • Naeem, Muhammad Abubakr

Abstract

This study examines the relationship between climate change exposure and the sovereign credit risk of 51 countries from 2010 to 2020. The findings suggest that countries with higher climate change exposure tend to exhibit greater sovereign credit risk. Additionally, GDP per capita and the growth of government debt act as mediating factors, suggesting that climate change exposure is linked to sovereign creditworthiness through economic and fiscal channels. Furthermore, developing countries tend to bear higher credit costs under climate change exposure, whereas sovereign credit risk in developed countries appears more sensitive to such exposure. Lastly, the negative association between climate change exposure and sovereign credit risk appears weaker in countries with stronger governance. This study underscores the significant association between climate change exposure and sovereign credit risk, offering new insights for research on climate-related financial risks.

Suggested Citation

  • Pan, Chu & Sun, Chentong & Zhang, Yue & Li, Yanshuang & Naeem, Muhammad Abubakr, 2026. "Climate change exposure and global sovereign credit risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 107(C).
    • Handle: RePEc:eee:intfin:v:107:y:2026:i:c:s1042443125001283
    DOI: 10.1016/j.intfin.2025.102238
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    Keywords

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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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