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Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?

Author

Listed:
  • Gong Cheng
  • Torsten Ehlers
  • Frank Packer
  • Yanzhe Xiao

Abstract

In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for the corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. Yet, our empirical study finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets. Our results suggest that both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut. The results are more pronounced in countries with stronger climate policies. Sovereign green bond issuance also improves the quality of green verification standards in the corporate bond market more generally, consistent with the aim of fostering third-party reviews and promoting best practice in green reporting and verification. Finally, our work provides evidence that the sovereign debut increases liquidity and diminishes yield spreads of corporate green bonds in the same jurisdiction.

Suggested Citation

  • Gong Cheng & Torsten Ehlers & Frank Packer & Yanzhe Xiao, 2024. "Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?," IMF Working Papers 2024/120, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/120
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    Cited by:

    1. Jakub Demski & Yingwei Dong & Patrick McGuire & Benoit Mojon, 2025. "Growth of the green bond market and green house gas emissions," BIS Quarterly Review, Bank for International Settlements, March.
    2. Becker, Annette & Fatica, Serena & Rancan, Michela, 2025. "Not only green: Sustainability and debt capital markets," Journal of International Money and Finance, Elsevier, vol. 154(C).
    3. Leandro M. Bona, 2024. "The Challenges of Overcoming the External Constraint in Latin America: An Examination of the Potentials and Challenges of Green Financing Using a Political Economy Perspective," Development, Palgrave Macmillan;Society for International Deveopment, vol. 67(3), pages 280-290, December.

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    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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