Kling, Gerhard ORCID: https://orcid.org/0000-0002-3029-7269, Lo, Yuen C. ORCID: https://orcid.org/0000-0002-9203-4368, Murinde, Victor ORCID: https://orcid.org/0000-0003-4113-5860 and Volz, Ulrich ORCID: https://orcid.org/0000-0001-9917-8068 (2025) Climate vulnerability and the cost of debt. Oxford Open Economics, 4:odaf003. ISSN 2752-5074 (Online) (doi:10.1093/ooec/odaf003)

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Abstract

We present the first systematic investigation of the impact of climate vulnerability on the cost of sovereign debt using a sample of 46 developing and advanced countries from 1996 to 2016. We find that a subgroup of 25 developing countries with higher exposure to climate vulnerability—all of which are members of the V20 climate vulnerable forum—exhibit, on average, a 1.174% higher cost of debt. We estimate that 40 members of the V20 paid USD 62 billion in additional interest from 2007 to 2016 due to their climate vulnerability. We also find that a measure of social readiness has a negative impact on bond yields, suggesting that social and physical investments in adaptation and resilience can help mitigate climate risk-related financing costs. Our findings indicate that climate vulnerability can threaten sovereign debt sustainability and cause financial exclusion, thereby undermining investment in adaptation and accelerating a vicious cycle of climate vulnerability, debt and underdevelopment.

Item Type:	Article
Uncontrolled Keywords:	climate vulnerability; cost of debt; V20 countries; climate change; financial exclusion
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance
Faculty / School / Research Centre / Research Group:	Greenwich Business School Greenwich Business School > School of Accounting, Finance and Economics
Last Modified:	25 Sep 2026 11:18
URI:	https://gala.gre.ac.uk/id/eprint/54442

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