Climate Change and the Cost of Capital in Developing Countries: Assessing the Impact of Climate Risks on Sovereign Borrowing Costs

This collaborative research project between Imperial College Business School and SOAS has been commissioned by UN Environment, with generous financial support from the MAVA Foundation. The study finds that climate risks are increasing the cost of capital for developing countries: for every ten dollars these countries pay in interest payments, an additional dollar is due to climate vulnerability. The study shows that over the past decade, a sample of developing countries have endured $40 billion in additional interest payments on government debt alone. The researchers estimate that these additional interest costs are set to rise to between $146bn and $168bn over the next decade, and could exacerbate the economic challenges already faced by poor countries around the world. However, the researchers also found that investments in climate resilience can help improve fiscal health at the national level.