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Sovereign green bonds: Risk-mitigating sustainability instruments in emerging markets

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  • Nevatia, Vedanshi

Abstract

Sovereign green bonds have emerged as a prominent policy instrument to mobilize climate finance, yet evidence on their pricing implications, especially across development levels and relative to unlabeled sustainability bonds, remains limited. This study provides the first global, bond-level analysis of sovereign green and sustainability bond pricing in secondary markets across advanced and emerging economies. Using Bloomberg data on 168 sovereign sustainability bonds issued between 2017 and 2023 across 44 countries, the analysis employs coarsened exact matching to estimate the greenium for green-labeled as well as unlabeled bonds. The results reveal strong regional heterogeneity. In advanced economies, sovereign green bonds trade at a positive yield premium of 20–40 basis points. In contrast, EMDEs exhibit a significant sovereign greenium of approximately 10 basis points for green-labeled bonds, alongside a positive premium for unlabeled sustainability bonds. This suggests that green labeling is associated with lowered perceived risk and informational asymmetry. This is especially true for riskier countries, speculative-grade bonds, and during periods of financial volatility. Overall, the results highlight that while sovereign green bonds may act as effective risk-mitigating instruments for climate finance in emerging economies, institutional heterogeneity and market structures have a role to play in shaping sustainability bond issuances.

Suggested Citation

  • Nevatia, Vedanshi, 2026. "Sovereign green bonds: Risk-mitigating sustainability instruments in emerging markets," Energy Economics, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:eneeco:v:155:y:2026:i:c:s0140988326000526
    DOI: 10.1016/j.eneco.2026.109173
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    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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