Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311177 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3011
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Climate-linked bonds, issued by governments and supranational organizations, are pivotal in advancing towards a net-zero economy. These bonds adjust their payoffs based on climate variables such as average temperature and greenhouse gas emissions, providing investors a hedge against long-term climate risks. They also signal government commitment to climate action and incentivize stronger policies. The price differential between climate-linked bonds and nominal bonds reflects market expectations of climate risks. This paper introduces a model of climate risk hedging and estimates that approximately three percent of government debt in major economies could be converted into climate-linked bonds.
Subjects: 
climate-linked bonds
climate risk
contingent claims
asset pricing
green finance
JEL: 
E58
G12
G13
Q54
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7003-7
Document Type: 
Working Paper

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