From risks to opportunities: The impact of green public investment programs on sovereign yields

Lucia Alessi, Anja Duranovic, Virmantas Kvedaras and Irene Monasterolo

Research in International Business and Finance, 2025, vol. 77, issue PA

Abstract: We study whether markets are accounting for the positive impact of countries’ climate investments into their judgement about country risk, proxied by sovereign bonds’ yields. Using the introduction of the European Commission (EC) Recovery and Resilience Facility (RRF), launched in 2021, as a natural experiment, we use a staggered difference-in-difference model to analyse the market pricing of the greenness of EU member states’ Recovery and Resilience Plans (RRPs). We find that the aggregate impact of climate investments in EU countries’ recovery plans on sovereign bonds is yield-reducing, and increases with longer residual maturity of bonds.

Keywords: Country climate investments; European Recovery and Resilience Facility; Sovereign climate risk; Bond yields; Staggered difference-in-difference (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:77:y:2025:i:pa:s0275531925001229

DOI: 10.1016/j.ribaf.2025.102866

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