Stanford University

*** Ph.D. Thesis/ Oral Defense ***

 

Climate Finacne in a Changing Climate: Isurance, Sovereign Debt, and

the Cost of Capital

 

June Choi

Monday, June 1, 2026, 9:30 AM

Shriram 262

Department of Earth System Science

Advisor: Dr. Noah Diffenbaugh and Dr. Marshall Burke

Addressing climate change, through both mitigation and adaptation, is anticipated to require global investments of more than $6 trillion annually by 2035. However, many countries face significant barriers to accessing the finance needed for these investments, including low or absent credit ratings, large debt burdens, and high borrowing costs. This dissertation investigates the impacts of extreme weather and warming temperatures on human and economic outcomes at multiple scales, with the aim of informing policy decisions about the equitable allocation of climate finance, both within and across countries.

In Chapter 1, I investigate flood insurance adoption following extreme flood events in the United States and conclude that relying on the autonomous adaptation of households to changing flood exposure will be insufficient to close the financial protection gap. However, most countries do not have balance sheets large enough to sustain publicly funded insurance programs like those in the United States. Therefore, in Chapter 2, I investigate climate impacts at the global scale, focusing on how tropical cyclones (TCs) and warming temperatures have impacted sovereign debt burdens, and how these effects, in turn, affect countries’ credit ratings and borrowing costs today. I find that, on average across TC-exposed countries, debt ratios are 25% higher due to TCs, while GDP levels are 10% lower due to the combined impacts of TCs and warming over the period 1980–2019. These persistent macroeconomic impacts translate into higher credit risks and borrowing costs for the hottest countries, placing greater financial constraints on countries that are least responsible for climate change yet highly exposed to climate risks. In Chapter 3, I build on the empirical findings from Chapter 2 to simulate how the International Monetary Fund’s debt sustainability projections are sensitive to TCs and warming scenarios over the next five years. I find that internal variability in the climate system is a dominant source of uncertainty in near-term debt projections, especially in the North Atlantic basin, and identify the macroeconomic impact channels associated with the worst-case debt scenarios in each country. Overall, this dissertation demonstrates how climate-related risks are already reshaping financial conditions globally, with important implications for designing policies that improve access to climate finance.