DP16898 Do the SDGs affect sovereign bond spreads? First evidence

Author(s): Dirk Schoenmaker, Eline Ten Bosch, Mathijs A Van Dijk
Publication Date: January 2022
Date Revised: January 2022
Keyword(s): Country SDG performance, Default Risk, Sovereign credit default swaps, Sovereign credit spreads, sustainable development goals
JEL(s): F34, G11, G12, H41, H62
Programme Areas: Public Economics, Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16898

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.