Political Risk, Sustainability and Sovereign Credit: Pricing High-Frequency Political, Environmental, Social and Governance News

Environmental, social and governance (ESG) components are critical inputs of long-term growth and affect sovereigns' ability and willingness to repay their debts. In this paper, we argue that the media provides information on extra-financial factors and ESG-related news coverage allows investors to update their expectations about the likelihood of repayment. Drawing on a global corpus of more than four billion news articles to identify the frequency and tone with which ESG factors are discussed daily, we show that reporting on ESG factors affects creditors' assessment of sovereign creditworthiness, even after accounting for political and macroeconomic conditions. By revisiting previous work with a broader scope and fine-grained data, we advance our understanding of how and based on what information creditors form expectations of sovereign creditworthiness.