Climate Vulnerability and the Cost of Debt

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Main author: Kling, Gerhard
Other authors: Lo, Yuen C.
Murinde, Victor
Volz, Ulrich
Format: Monographs and Working Papers           
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id eprints-26045
recordtype eprints
institution SOAS, University of London
collection SOAS Research Online
language English
language_search English
description We use indices from the Notre Dame Global Adaptation Initiative to investigate the impact of climate vulnerability on bond yields. Our methodology invokes panel ordinary least squares with robust standard errors and principal component analysis. The latter serves to address the multicollinearity between a set of vulnerability measures. We find that countries with higher exposure to climate vulnerability, such as the member countries of the V20 climate vulnerable forum, exhibit 1.174 percent higher cost of debt on average. This effect is significant after accounting for a set of macroeconomic controls. Specifically, we estimate the incremental debt cost due to higher climate vulnerability, for the V20 countries, to have exceeded USD 62 billion over the last ten years. In other words, for every ten dollars they pay in interest cost, they pay another dollar for being climate vulnerable. We also find that a measure of social readiness, which includes education and infrastructure, has a negative and significant effect on bond yields, implying that social and physical investments can mitigate climate risk related debt costs and help to stabilize the cost of debt for vulnerable countries.
format Monographs and Working Papers
author Kling, Gerhard
author_facet Kling, Gerhard
Lo, Yuen C.
Murinde, Victor
Volz, Ulrich
authorStr Kling, Gerhard
author_letter Kling, Gerhard
author2 Lo, Yuen C.
Murinde, Victor
Volz, Ulrich
author2Str Lo, Yuen C.
Murinde, Victor
Volz, Ulrich
title Climate Vulnerability and the Cost of Debt
publisher SOAS University of London. Mimeo
publishDate 2018
url https://eprints.soas.ac.uk/26045/

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