Do green financial policies offset the climate transition risk penalty imposed on long-term sovereign bond yields? |
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Institution: | 1. The World Bank, United States;2. Fox International Fellow, Yale University, United States;3. Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore |
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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. |
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Keywords: | Green finance Transition risks Sovereign bonds Bond yields Green financial policies |
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