Atreya Dey | University of Cambridge
  • Climate Finance
  • Sovereign Risk
  • Geospatial Data

Inattention to the coming storm? Rising seas and sovereign credit risk

Atreya Dey

Working paper · Last revised: February 2025

Best PhD Paper Award, Principles for Responsible Investment Academic Conference 2024

Horizontal bar chart of fourteen sovereigns ranked by the trend in their population's exposure to extreme sea-level hazard. Latvia, Thailand, Egypt, China, Japan, and Vietnam show rising exposure; Norway, Uruguay, and Denmark show declining exposure.
Trends in forecasted population exposure to 1-in-100-year coastal floods across sovereigns. Figure 3 of the paper.

Abstract

This study examines whether the sovereign credit market incorporates expectations of coastal flooding and sea level rise (SLR). The results indicate that medium- and long-term credit default swap spreads increase for sovereigns with a substantial portion of their population vulnerable to ex-ante coastal flooding in response to news around climate summits. Predictability tests suggest that the market asynchronously incorporates changing vulnerabilities of regions into its risk assessment with such news, consistent with theories of inattention to information. A real-options model is used to consider debt financing trade-offs associated with sovereign inaction or investment into adaptation.

Overview

Coastal flooding driven by sea-level rise is among the most predictable consequences of climate change, yet whether sovereign debt markets price it is an open question. Using granular elevation and population data to measure each country’s exposed population, I show that credit default swap spreads of vulnerable sovereigns respond to climate news around international summits — but the response lags changes in measured vulnerability, consistent with theories of investor inattention.

The paper received the Best PhD Paper Award at the 2024 PRI Academic Conference (from roughly 200 submissions), and I discussed it in a video interview with the PRI and Tom Gosling (London Business School). An earlier version circulated as “Surging sovereign spreads: the impact of coastal flooding on sovereign risk.”

Presentations

  • CERF 25th Anniversary Conference, University of Cambridge, June 2026
  • JFQA/Baruch Climate Finance Conference (poster), June 2025
  • American Finance Association Poster Session, San Francisco, January 2025
  • UNPRI Academic Conference, Toronto, October 2024
  • China International Conference in Finance
  • FMA Applied Finance Conference, 2024
  • Financial Stability Seminar, Bank of Portugal
  • International Banking, Economics, and Finance Association (ASSA meetings)
  • Global Research Alliance for Sustainable Finance and Investment

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