Political Risk, Sustainability and Sovereign Credit: Pricing High-Frequency Political, Environmental, Social and Governance News

38 Pages Posted: 18 Jan 2024

See all articles by Anne Spencer Jamison

Anne Spencer Jamison

Copenhagen Business School

Lauren L. Ferry

University of Mississippi

Witold J. Henisz

University of Pennsylvania - Management Department

Anastasia Gracheva

University of Pennsylvania - Management Department

Date Written: January 10, 2024

Abstract

Do environmental, social and governance (ESG) factors affect sovereign credit risk? As E, S, and G factors (e.g., natural and human capital) are critical inputs for long-term growth, they should affect both sovereign ability and willingness to pay. Drawing on a global corpus of more than four billion news articles in sixty-five languages to identify the frequency and tone with which ESG factors are discussed daily, this research note shows that ESG factors affect creditors’ assessment of sovereign creditworthiness, even after accounting for political institutions and macroeconomic conditions. By revisiting previous work with a broader scope and more fine-grained data in an error correction model, we advance academic and practical conversations about how creditors formulate and update their expectations of sovereign creditworthiness. This project speaks to larger questions in the literature about the effects of globalization, the importance of extra-financial factors, and the pricing of information in international financial markets.

Keywords: ESG, sovereign bonds, media, political risk, sustainability

Suggested Citation

Jamison, Anne and Ferry, Lauren and Henisz, Witold Jerzy and Gracheva, Anastasia, Political Risk, Sustainability and Sovereign Credit: Pricing High-Frequency Political, Environmental, Social and Governance News (January 10, 2024). The Wharton School Research Paper, Available at SSRN: https://ssrn.com/abstract=4689763 or http://dx.doi.org/10.2139/ssrn.4689763

Anne Jamison (Contact Author)

Copenhagen Business School

Porcelænshaven 24A
Office 2.56_01
Frederiksberg, Capital region 2000
Denmark

Lauren Ferry

University of Mississippi ( email )

Oxford, MS 38677
United States

Witold Jerzy Henisz

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-898-0788 (Phone)
215-898-0401 (Fax)

HOME PAGE: http://www-management.wharton.upenn.edu/henisz/

Anastasia Gracheva

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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