Do the SDGs Affect Sovereign Bond Spreads? First Evidence

47 Pages Posted: 4 Feb 2022

See all articles by Dirk Schoenmaker

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Eline ten Bosch

Rotterdam School of Management, Erasmus University

Mathijs A. van Dijk

Erasmus University Rotterdam (EUR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2022

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.

Keywords: Country SDG performance, Default Risk, Sovereign credit default swaps, Sovereign credit spreads, sustainable development goals

JEL Classification: F34, G11, G12, H41, H62

Suggested Citation

Schoenmaker, Dirk and ten Bosch, Eline and van Dijk, Mathijs A., Do the SDGs Affect Sovereign Bond Spreads? First Evidence (January 1, 2022). CEPR Discussion Paper No. DP16898, Available at SSRN: https://ssrn.com/abstract=4026785

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Eline Ten Bosch

Rotterdam School of Management, Erasmus University ( email )

Burgemeester Oudlaan 50
Rotterdam
Netherlands

Mathijs A. Van Dijk

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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