Addressing Climate Change: Credit Risk and the Potential of Innovative Financing

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The text focuses on the increasing importance of climate change management in determining sovereign and credit risk. Notably, green bonds are being used to steer capital towards climate change prevention and adaptation. Moreover, supranational organisations are seen as key in devising innovative financing solutions. The author points out that due to the growing impact of extreme weather events, climate change adaptation is becoming essential, yet only a small portion of climate-related investments is dedicated to this aspect.

Adapting to Climate Change: The Role of Sovereigns and Bonds

In the second part, the author highlights that as ESG integration becomes standard, investor scrutiny on environmental implications for potential risk and reward profiles is increasing. Sovereign-level emissions trajectories, biodiversity net positive ambitions and broader ESG considerations are becoming increasingly important factors of sovereign credit risk. Additionally, green bonds and sustainability-linked bonds are presented as tools directing capital towards climate change prevention and adaptation. Interestingly, countries with a stable bond rating, like Switzerland, could support developing countries in their transition towards more sustainable economies by issuing green bonds.

Discover the interconnectedness of climate change and credit risk and explore innovative financial solutions by clicking "Read report".