Sovereign bond climate risk: not all Net Zero pledges are equal

Not all Net Zero targets are created equal. Depending on historical and current carbon emissions, some are more ambitious than others. And, crucially, many such pledges are inconsistent with nearer-term targets – the 2030 goals set out in the Nationally Determined Contributions (NDCs) as part of the Paris Agreement process – as well as countries’ existing suites of decarbonisation policies.

An analysis of these discrepancies can help investors gauge, in the current international momentum for climate action, the risk incurred by countries that do not engage seriously enough to decarbonising their economies. These analyses also help investors wanting to construct portfolios of sovereign debt that are better aligned with the objectives of the Paris Agreement.

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