Do green financial policies offset the climate transition risk penalty imposed on long-term sovereign bond yields?

Ruijie Cheng, Bhavya Gupta and Ramkishen S. Rajan

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: Asset valuations in high-carbon sectors face significant corrections due to climate risks. This paper specifically analyses whether markets impose a penalty on long-term sovereign bonds issued by countries facing higher climate-related transition risk while rewarding those that have implemented green financial policies to mitigate these risks. We find that higher carbon dioxide emissions and a lower sustainable development score (both proxies for transition risks) lead to an increase in long-term sovereign bond yields. However, the presence of green financial policies appears to offset this climate transition risk premium.

Keywords: Green finance; Transition risks; Sovereign bonds; Bond yields; Green financial policies (search for similar items in EconPapers)
JEL-codes: F32 F41 F62 G15 H63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923001022

DOI: 10.1016/j.ribaf.2023.101976

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