Nature as a Defense from Disasters: Natural Capital and Municipal Bond Yields

62 Pages Posted: 28 Mar 2022 Last revised: 20 Feb 2024

See all articles by Claudio Rizzi

Claudio Rizzi

University of Navarra - Finance

Date Written: September 16, 2022

Abstract

This paper shows that natural capital loss affects financial markets and municipalities' borrowing costs. Using exogenous geographic variation in wetland changes, I find that losses in wetland areas are related to an increase in municipal bond yields due to increased downside risk and extreme weather uncertainty. Municipal bond markets price natural capital loss risk following extreme weather events. The effect is more prominent for longer maturity bonds, bonds issued by counties more reliant on local tax revenue, and farming communities. The results show one of the costs of natural capital destruction on financial markets and local government's finances.

Keywords: Climate change, environmental valuation, municipal bonds, municipal financing, natural disasters.

JEL Classification: G14, H74, Q54, Q56

Suggested Citation

Rizzi, Claudio, Nature as a Defense from Disasters: Natural Capital and Municipal Bond Yields (September 16, 2022). Available at SSRN: https://ssrn.com/abstract=4038371 or http://dx.doi.org/10.2139/ssrn.4038371

Claudio Rizzi (Contact Author)

University of Navarra - Finance ( email )

08034 Barcelona
Spain

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