Climate Transition Risk in Sovereign Bond Markets

49 Pages Posted: 8 Jun 2021 Last revised: 22 Dec 2022

See all articles by Sierra Collender

Sierra Collender

University of Technology Sydney (UTS)

Baoqing Gan

Ardea Investment Management; University of Technology Sydney

Christina Sklibosios Nikitopoulos

University of Technology Sydney - Business School; Financial Research Network (FIRN)

Kylie-Anne Richards

University of New South Wales (UNSW) - School of Mathematics and Statistics; University of Technology Sydney (UTS) - UTS Business School

Laura Simone Ryan

University of Technology Sydney (UTS); Australian National University (ANU)

Date Written: November 29, 2022

Abstract

Is climate transition risk factored into sovereign bond markets? We find that carbon dioxide emissions, natural resources rents, and renewable energy consumption, as measures of transition risk, significantly impact yields and spreads. Countries with lower carbon emissions incur a lower borrowing cost. Advanced countries reducing their earnings from natural resource rents and increasing renewable energy consumption are associated with lower borrowing costs, which differs from the effects in developing countries. Given the threat climate change poses to the global economy and the fast materialisation of transition risk, we advocate an increase in the significance of climate transition risk factors as determinants of sovereign bond markets.

Keywords: climate change, transition risk, sovereign yields, carbon dioxide, natural resources rents, renewables, GDP

JEL Classification: F34, G15, H63, Q20, Q51

Suggested Citation

Collender, Sierra and Gan, Baoqing and Sklibosios Nikitopoulos, Christina and Richards, Kylie-Anne and Richards, Kylie-Anne and Ryan, Laura Simone, Climate Transition Risk in Sovereign Bond Markets (November 29, 2022). Available at SSRN: https://ssrn.com/abstract=3861350 or http://dx.doi.org/10.2139/ssrn.3861350

Sierra Collender

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Baoqing Gan

Ardea Investment Management ( email )

2/5 Martin Place
Sydney, NSW, 2000
Australia

University of Technology Sydney ( email )

14-28 Ultimo Rd, UTS Business School,
Ultimo, NSW
Sydney, NSW 2007
Australia
2217 (Fax)

Christina Sklibosios Nikitopoulos (Contact Author)

University of Technology Sydney - Business School ( email )

15 Broadway, Ultimo
Sydney 2007, New South Wales
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Kylie-Anne Richards

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

University of New South Wales (UNSW) - School of Mathematics and Statistics ( email )

Sydney, 2052
Australia

Laura Simone Ryan

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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