Joining the dots: climate, nature and the sovereign debt crisis

There is a need to finance the transition to a nature positive, net-zero world in an increasingly stressed context of climate change, biodiversity loss and unsustainable sovereign debt levels. Today’s sovereign debt markets do not take adequate account of climate and nature risks, and do not reward sovereigns that invest in the regeneration of nature and climate resilience critical to their sustainable development. Moreover, sovereign debt markets are ill-suited to increasingly frequent external shocks, driving a vicious cycle of under-investment, sovereign fragility, and extreme debt distress. 

At this event, NatureFinance drew on their new paper on ‘More for less – scaling sustainability-linked sovereign debt’ and Bruegel on our ‘The potential of sovereign sustainability-linked bonds in the drive for net-zero’ target: the potential of sovereign sustainability-linked bonds’. The panellists discussed how the issuance of sustainability performance-linked sovereign bonds that reward climate and nature outcomes can catalyse the called-for revolution in sovereign debt markets.