Sovereign debt management in the face of climate liabilities: perspective of European Union member states

Climate change impact on sovereign debt management has become an issue of great concern. The aim of this paper is to analyse the changes in the traditional approach of sovereign debt managers in the face of the pursued climate policy and different scenarios of climate liabilities for 2050. We follow a novel three-fold research approach: 1) assessment of the estimated level of current climate liabilities based on the Fiscal Risk Matrix; 2) performing forward-looking climate debt projections over the timeframe 2025-2050 for the EU countries; 3) conducting case study research on EU countries, to identify the sovereign climate debt management activities undertaken so far and to define a series of good-practice guidelines. Findings indicate a growing role of the climate financial mechanisms in sovereign debt management. In particular, our climate scenario approach reveals those scenarios in which a country’s fiscal position indicators are more vulnerable from the standpoint of rising public expenditure due to the country’s inability to manage CO2 gas emissions. Each country is responsible for its climate pathway by 2050 and this will be mainly determined by the timeliness, efficacy and appropriateness of the public policies and measures implemented to mitigate climate change.