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<p>Government actions based on widespread and rapid climate change expose the sovereign bond market to climate policy uncertainty. This paper explores the impact of climate policy uncertainty (CPU) on Sovereign Borrowing Costs (SBC), using the global CPU index and a high-dimensional fixed-effects model (HDFE). It employs various methodologies, including an autoregressive (AR) panel data model and Heckman’s two-step method, to solve potential endogeneity problems. The findings reveal that CPU exerts a significantly positive influence on SBC, with a more pronounced effect in economies with lower economic development, higher climate vulnerability, or lower climate resilience. Additionally, macroeconomic indicators—including inflation, GDP growth, and the domestic savings-to-GDP ratio—enhance the CPU–SBC linkage, while stock market volatility acts as a dampening factor. The study further shows that CPU affects SBC through channels such as political stability and international liquidity. These results highlight the importance of incorporating CPU into investment strategies, policymaking, and sustainable development frameworks.</p> Graphical Abstract <p></p>

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Climate policy uncertainty and its impact on sovereign borrowing costs

  • 期刊论文

  • 发表日期：

    2025年5月10日

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  • Nannan Guo,
  • Shanghui Jia,
  • Yingke Liu

摘要

Government actions based on widespread and rapid climate change expose the sovereign bond market to climate policy uncertainty. This paper explores the impact of climate policy uncertainty (CPU) on Sovereign Borrowing Costs (SBC), using the global CPU index and a high-dimensional fixed-effects model (HDFE). It employs various methodologies, including an autoregressive (AR) panel data model and Heckman’s two-step method, to solve potential endogeneity problems. The findings reveal that CPU exerts a significantly positive influence on SBC, with a more pronounced effect in economies with lower economic development, higher climate vulnerability, or lower climate resilience. Additionally, macroeconomic indicators—including inflation, GDP growth, and the domestic savings-to-GDP ratio—enhance the CPU–SBC linkage, while stock market volatility acts as a dampening factor. The study further shows that CPU affects SBC through channels such as political stability and international liquidity. These results highlight the importance of incorporating CPU into investment strategies, policymaking, and sustainable development frameworks.

Graphical Abstract