Do Markets Value ESG Risks in Sovereign Credit Curves?

43 Pages Posted: 12 Dec 2019 Last revised: 21 Jan 2020

See all articles by Benjamin Hübel

Benjamin Hübel

Friedrich-Alexander-Universität Erlangen-Nürnberg

Date Written: January 21, 2020


This paper investigates the role of countries’ environmental, social and governance (ESG) performance in sovereign debt markets. Based on a comprehensive data set covering 60 countries from 2007 to 2017, we find that ESG matters for both the level and the slope of the term structure of sovereign credit spreads. Countries with superior ESG performance show lower sovereign credit default swap (CDS) spreads and flatter CDS implied credit curves. This indicates a risk-mitigating effect of country sustainability that is even more pronounced in the long term than in the short term. These results remain robust with regard to various economic and financial control variables as well as credit ratings, implying that CDS markets incorporate ESG information differently than credit rating agencies. From a portfolio management perspective, we find that considering ESG does not involve sacrificing financial performance. Indeed, investors can potentially benefit from ESG differences between countries with similar credit ratings.

Keywords: Sovereign credit spreads, country sustainability, ESG ratings, credit default swaps

JEL Classification: G11, G12, G14, G18

Suggested Citation

Hübel, Benjamin, Do Markets Value ESG Risks in Sovereign Credit Curves? (January 21, 2020). Available at SSRN: or

Benjamin Hübel (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

0049-911-5302405 (Phone)
0049-911-5302466 (Fax)


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