Climate change and the cost of capital in developing countries: assessing the impact of climate risks on sovereign borrowing costs

Increased risk from vulnerability to climate change is increasing the cost of capital and is projected to cause an additional USD 168 billion of debt payments over the next ten years among the most climate change vulnerable countries, according to new research commissioned by the UN. A new report compiled by the Centre for Climate Finance & Investment at Imperial College Business School and the SOAS University of London Department of Economics is the first of its kind to look at the relationship between climate change, sovereign credit profiles, and the cost of capital in developing countries. The report finds that rapid climate change action to limit emissions to 2°C global average temperature warming above pre-Industrial Revolution levels and aim for 1.5 °C as agreed upon in the Paris Climate Agreement not only minimizes the impact of climate change, but reduces the future cost of climate change action and adaptation.