Discussion Paper Details

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Title: Do the SDGs affect sovereign bond spreads? First evidence

Author(s): Dirk Schoenmaker, Eline Ten Bosch and Mathijs A Van Dijk

Publication Date: January 2022

Keyword(s): Country SDG performance, Default Risk, Sovereign credit default swaps, Sovereign credit spreads and sustainable development goals

Programme Area(s): Development Economics, Financial Economics and Public Economics

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.

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Bibliographic Reference

Schoenmaker, D, Ten Bosch, E and Van Dijk, M. 2022. 'Do the SDGs affect sovereign bond spreads? First evidence'. London, Centre for Economic Policy Research.