Climate Change and Sovereign Debt: Are Financial Markets Pricing the Risks?
About:
This hybrid seminar features Marianna Blix Grimaldi, an adviser at Sweden’s central bank and an expert on financial stability and financial markets[1]. She will discuss how climate change has emerged as a new risk factor for financial stability by affecting sovereign creditworthiness[2], presenting fresh evidence on how both the transition to a low-carbon economy and extreme weather events influence government bond markets.
Using data from 52 countries over the past two decades[3], Grimaldi’s research finds that higher carbon emissions (a proxy for transition risk) are associated with higher sovereign borrowing costs, with the effect especially pronounced in developing economies and notably since the Paris Agreement in 2015[4]. In contrast, gradual warming trends have not yet significantly raised borrowing costs, but severe climate-related disasters – such as floods, storms or droughts – do lead to higher sovereign yields for countries with limited fiscal space (high debt levels) and lower incomes[5]. Marianna Blix Grimaldi will explore the implications of these findings for investors and policymakers, underscoring the importance of integrating climate risks into financial decision-making and highlighting the need for policies that jointly address climate change and sovereign debt challenges to avoid a vicious cycle of escalating risks[6].
Speaker:
Marianna Blix Grimaldi is an adviser at the Financial Stability Department of Sveriges Riksbank, where she works on financial markets, risk assessment and the intersection between climate change and sovereign credit risk. Her recent research focuses on how both transition risks—such as carbon-intensive economic structures—and physical risks from climate-related disasters influence sovereign borrowing costs and financial stability. She has extensive experience in monetary policy analysis, market microstructure, and financial modelling, and has contributed to several Riksbank research projects on climate-related financial risks. Marianna Blix Grimaldi holds a PhD in Economics and has previously worked in roles spanning academic research and policy development.
[1] [6] SUERF – The European Money and Finance Forum
[2] [3] [4] [5] Decoding climate-related risks in sovereign bond pricing: a global perspective