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Climate transition risk in sovereign bond markets

Author

Listed:
  • Collender, Sierra
  • Gan, Baoqing
  • Nikitopoulos, Christina S.
  • Richards, Kylie-Anne
  • Ryan, Laura

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 affect yields and spreads. Countries with lower carbon emissions incur lower borrowing costs. Advanced countries with reduced earnings from natural resources rents and increased renewable energy consumption are associated with lower borrowing costs, which differ from the effects in developing countries. Given the threat that climate change poses to the global economy and the fast materialization of transition risk, we advocate an increase in the significance of climate transition risk factors as determinants in sovereign bond markets.

Suggested Citation

  • Collender, Sierra & Gan, Baoqing & Nikitopoulos, Christina S. & Richards, Kylie-Anne & Ryan, Laura, 2023. "Climate transition risk in sovereign bond markets," Global Finance Journal, Elsevier, vol. 57(C).
  • Handle: RePEc:eee:glofin:v:57:y:2023:i:c:s1044028323000637
    DOI: 10.1016/j.gfj.2023.100868
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    More about this item

    Keywords

    Carbon dioxide; Climate transition risk; Natural resources rents; Renewables; Sovereign bond yields;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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