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National COVID debts: climate change imperils countries’ ability to repay

National COVID debts: climate change imperils countries’ ability to repay

Analysis reveals three ways to boost green investment and achieve a resilient recovery from the coronavirus pandemic.

Most governments’ astronomical borrowing during the current pandemic pays scant attention to the effects that climate change could have on their ability to repay the debt. Here we present an analysis of countries’ sovereign debt issued in 2020, showing that the vast majority of nations did not disclose the ways in which global warming might alter their credit-worthiness.

This is concerning. Even the anticipation of a climate shock might cause a debt crisis. If financial markets misprice the current risk, an event in one country could awaken investors’ sensitivity, triggering a synchronized revaluation of sovereign debt everywhere.

This vulnerability can be avoided if climate risks are properly assessed and disclosed by governments that are issuing sovereign bonds to raise money, and if the money borrowed is spent on greening countries’ economies. As of early March 2021, around half of the COVID-19 stimulus funding that wealthy G20 countries had paid to the energy sector — roughly US$250 billion — had gone towards fossil fuels, rather than to cleaner energy sources (see go.nature.com/2qrratf).

Without more transparency, investors could demand a higher interest rate or refuse to lend entirely. In February, BlackRock, one of the world’s largest asset-management firms, set a “strategic preference” for developed markets, citing the risk of climate exposure in low- and middle-income nations and their more carbon-intensive economies.

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