Do Markets Value ESG Risks in Sovereign Credit Curves?

41 Pages Posted: 12 Dec 2019 Last revised: 7 Jul 2020

See all articles by Benjamin Hübel

Benjamin Hübel

Friedrich-Alexander-Universität Erlangen-Nürnberg

Date Written: July 2, 2020


This paper investigates the role of countries' environmental, social and governance (ESG) performance in sovereign CDS markets. Based on data for 60 countries from 2007 to 2017, we find that countries with superior ESG performance do not only show lower credit default swap (CDS) spreads, they also exhibit flatter CDS implied credit curves. This implies a risk mitigation effect of ESG which 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 an investor's perspective, we find that considering ESG does not involve sacrificing returns. Indeed, investors can potentially benefit from ESG differences between countries with similar credit ratings.

Keywords: Sovereign credit spreads, country sustainability, credit default swaps, CDS curves, term structure

JEL Classification: G11, G12, G14, G18

Suggested Citation

Hübel, Benjamin, Do Markets Value ESG Risks in Sovereign Credit Curves? (July 2, 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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