Sovereign bond yield spreads and sustainability : an empirical analysis of OECD countries
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We study whether and how a country's environmental, social, and governance (ESG) performance relates to its sovereign borrowing costs in international capital markets. We hypothesize that good ESG performance plays an economic role: It signals a country's commitment to sustainability and long-term orientation and is a buffer against negative shocks, leading to lower sovereign bond yield spreads. Using a sample of 20 OECD countries over the period 1996–2012, we show that countries with good ESG performance are associated with lower default risk and lower sovereign bond yield spreads. Moreover, we show that the social and governance dimensions have a significant negative association with sovereign bond yield spreads, whereas the environmental dimension does not.
Capelle-Blancard , G , Crifo , P , Diaye , M-A , Oueghlissi , R & Scholtens , B 2019 , ' Sovereign bond yield spreads and sustainability : an empirical analysis of OECD countries ' , Journal of Banking and Finance , vol. 98 , pp. 156-169 . https://doi.org/10.1016/j.jbankfin.2018.11.011
Journal of Banking and Finance
Copyright © 2018 Elsevier B.V. All rights reserved. This work has been made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jbankfin.2018.11.011
DescriptionPatricia Crifo acknowledges the support of the chair for Sustainable Finance and Responsible Investment (chair FDIR – Toulouse IDEI & Ecole Polytechnique), the chair for Energy and prosperity, finance and evaluation of energy transition, and the Research program Investissements d'Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11- LABX-0047).
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