An analysis of the impact of sustainability efforts on the government bond market

Bodó, Regina (2026) An analysis of the impact of sustainability efforts on the government bond market. ECONOMY AND FINANCE: ENGLISH-LANGUAGE EDITION OF GAZDASÁG ÉS PÉNZÜGY, 13 (1). pp. 51-68. ISSN 2415-9379

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Abstract

Sustainable development, the ESG framework (environmental, social and governance factors) and green finance are of growing importance in light of the increasing risks and costs stemming from climate change. This study examines how countries’ ESG performance influences the yields on their government bonds. Although ESG factors are often examined at the corporate level, they are also relevant at the country level, though less frequently researched. Due to their better ESG performance, the government bonds of more developed countries may appear safer, thus requiring a lower risk premium from investors. According to the hypothesis of the study, the higher ESG performance of the OECD countries is associated with lower bond yields. Based on a panel regression analysis covering the period 2002–2020, certain ESG factors had a significant negative impact on yields, with the environmental factor having a particularly significant effect. Although macroeconomic factors continue to have the greatest impact on yields, it is also important to take ESG factors into account during the risk analysis.

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