Dr Matt Burke, Lecturer in Finance, alongside his co-authors Professor Pati Klusak, Professor Matthew Agarwala, Dr Kamiar Mohaddes, Professor Uli Volz and Dr Moritz Kraemer, has received the fourth annual Financial Times award for ‘Academic research with impact’ as part of their Responsible Business Education Award.
Financial markets lack credible, actionable information connecting climate change to material risks, hindering effective decision making. Matt and the research team’s underlying research paper, Rising Temperatures, Falling Rates: The Effect of Climate Change on Sovereign Creditworthiness, introduces the first simulation-based climate-adjusted sovereign credit ratings for 109 countries. The study finds that climate-induced sovereign credit downgrades appear as early as 2030 and will intensify throughout the century. However, stringent climate policies aligned with the Paris Agreement could nearly eliminate these credit downgrades.
The paper was listed as a winner as part of a broader programme of research which uses artificial intelligence to combine Intergovernmental Panel on Climate Change (IPCC) climate models and World Bank ecological models with real world financial indicators to simulate the effects of environmental change on public and corporate borrowing. This results in evidence-based, decision-ready assessments of how environmental changes will affect the cost of sovereign and corporate borrowing, the probability of default, and changes in creditworthiness for over 100 countries.
The paper was supported by the International Network for Sustainable Financial Policy Insights, Research and Exchange (INSPIRE). INSPIRE is a global research stakeholder of the Network for Greening the Financial System (NGFS). It is philanthropically funded through the ClimateWorks Foundation and co-hosted by ClimateWorks and the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
Dr Matt Burke and his colleagues have shared their research and insights via academic papers and conferences. They have also delivered bespoke presentations for key institutions, including the International Monetary Fund (IMF), World Bank, Asian Infrastructure Investment Bank (AIIB), and the Inter-American Development Bank (IDB), as well as central banks such as the Banque de France, Banco de España, Bank Negara, Malaysia and the Federal Reserve Board, Washington, D.C.
The research contributed to and was cited in the Biden-Harris Administration’s National Strategy for developing capital accounts. It is now the official US Government Policy to produce comprehensive natural capital accounts.
It also led to a two-year body of work, commissioned by the IDB, to develop a bespoke assessment of the impacts of climate change on sovereign debt markets and the tourism sector in Guyana, Trinidad and Tobago, Suriname, The Bahamas, Barbados and Jamaica. This enabled the IDB and the economies of the countries to better plan for climate transition.
The research also stimulated an ongoing research project with a FTSE100 and global top 50 bank on risk in sovereign bond portfolios, enabling them to comply with climate disclosure regulation.
It is brilliant to see Matt’s groundbreaking research recognised with such a prestigious award. By leading the way in integrating climate science into financial indicators, Dr Matt Burke has made the Management School incredibly proud as we continue to pursue our mission to create a positive global impact through our innovative research.
Professor Fraser McLeay
Dean, Sheffield University Management School