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Do the SDGs affect sovereign bond spreads? First evidence

Author

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  • Schoenmaker, Dirk
  • Ten Bosch, Eline
  • Van Dijk, Mathijs

Abstract

We study the relation between a country's performance on the United Nations' Sustainable Development Goals (SDGs) and its sovereign bond spread. Using a novel country-level SDG measure for a global sample of countries, we find a significantly negative relation between SDG performance and credit default swap (CDS) spreads, while controlling for traditional macroeconomic factors. This effect is stronger for longer maturities, in line with the notion that the SDGs represent long-term objectives. The results are most consistent with perceived default risk driving this relation, rather than investor preferences. In sum, our initial evidence suggests that investing in the SDGs provides governments with financial benefits besides ecological and social welfare.

Suggested Citation

  • Schoenmaker, Dirk & Ten Bosch, Eline & Van Dijk, Mathijs, 2022. "Do the SDGs affect sovereign bond spreads? First evidence," CEPR Discussion Papers 16898, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16898
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    More about this item

    Keywords

    Sustainable development goals; Sovereign credit default swaps; Sovereign credit spreads; Default risk; Country sdg performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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