Climate Change and Public Debt: two years later

Two years after their original analysis, Hilde Veelaert and Pim Burggraeve reaffirm that climate change continues to have a lasting impact on public debt and sovereign risk, though the geopolitical context has changed significantly.

In the U.S., a political shift has led to reduced support for climate policy, increasing uncertainty and government borrowing costs. Globally, the growing impact of physical climate events is pushing investors and credit rating agencies to take climate risks more seriously in their country assessments. At the same time, renewable energy and the broader energy transition have proven more economically viable and are creating jobs—an unexpected but positive development. Europe continues to invest in climate initiatives despite rising debt levels, making it an attractive region for investors focused on sustainability and stability.

Their key conclusion: climate risk has become a central factor in sovereign bond risk assessments, and investors must systematically account for ESG and physical risks.