Relevance of SDGs on sovereign bond spreads: analysis of OECD countries

In addition to traditional macroeconomic determinants, the drivers of the bond yield spread might be sought between Environmental, Social, and Governance (ESG) factors. Several results in the literature suggest the existence of this relationship, especially in the private sector. The wide diffusion of the Sustainable Development Goals (SDGs) as globally recognized metrics to measure ESG performances has allowed moving the analysis also to the level of the sovereign debt market. Using a country-level SDGs measure for a sample of OECD countries, a significant negative relationship between a country’s sovereign bond spread and its SDG performance emerges. This effect is strong in the long run, suggesting that ESG commitments are a long-lasting phenomenon. Moreover, looking for the relevance of individual SDGs dimensions, the economic and governance dimensions appear to have a stronger influence compared to social and environmental ones.