Every year, the world falls short by an estimated 2.6 trillion US dollars to achieve the United Nations’ Sustainable Development Goals (SDGs). While this number is daunting, new research shows that part of the solution may lie in an unexpected place: government bond markets. A modest shift in how investors allocate their government bond portfolios could meaningfully support global sustainable development.
Laurens Swinkels, Associate Professor in the section Finance at Erasmus School of Economics, together with his his co-authors Jan Anton van Zanten (Rotterdam School of Management) and Bruno Rein and Rikkert Scholten from Robeco, examined whether government bond investors can help channel capital to countries with strong sustainability policies but limited access to affordable financing. Their conclusion: reallocating a small share of capital from developed to emerging markets could play an important role in closing the SDG financing gap.
Assessing which governments support the SDGs
Swinkels and his co-authors rely on the Robeco Country SDG Framework to understand which governments are most aligned with the SDGs. This framework evaluates three elements: how government policies relate to sustainable development, the extent to which countries struggle to access international capital, and whether they avoid serious controversies that undermine SDG principles. Instead of rewarding countries that have already made progress, it highlights those with the strongest potential to move forward when given adequate financial support.
The assessment of 170 governments shows considerable differences. More than half, 52%, receive a negative score, suggesting that their policies are at odds with the SDGs. A smaller group (22%) receives a neutral evaluation, while 26% receive a positive score. The results indicate that many governments still pursue policies that are not aligned with the SDGs. At the same time, the research also identifies governments, often emerging economies, with strong intentions and policy frameworks that could deliver meaningful progress if they gained better access to financing.
Promising countries often face limited market access
A major complication, however, is whether these countries are investable at all. The study finds that roughly one-third of the assessed governments lack sufficiently developed or open bond markets for international investors. This is particularly problematic for countries that score well on sustainability but cannot attract private finance simply because investors cannot access their markets.
Still, not all high-scoring countries face this obstacle. A substantial group combines positive SDG scores with accessible bond markets. These governments offer immediate opportunities for investors who want their portfolios to support sustainable development.
How an SDG-aligned portfolio can be constructed
To bring this into practice, the researchers develop a long-term investment strategy that increases the relative weight of countries with stronger SDG scores. Countries with weak scores are excluded, while strong performers receive larger allocations. The approach is designed to remain stable over time, avoiding frequent reshuffling.
This strategy produces subtle but meaningful differences compared to conventional global government bond indices. For example, the United States receives slightly less weight in years when its sustainability policies score lower, while Italy’s weight can increase when its policies align more closely with SDG priorities. In Europe, the methodology results in larger allocations to countries such as France, Italy, Germany, and Spain.
The greatest impact, however, emerges in emerging markets. These countries face the largest financing shortfalls yet have the most to gain from affordable capital. According to Swinkels, the sustainability benefits of reallocating towards these markets are considerably higher than similar adjustments within developed markets.
Small shifts can lead to substantial impact
Borrowing costs for emerging markets tend to be significantly higher than in developed countries. This means that even a modest increase in investor demand can reduce interest rates and expand governments’ financial capacity. The study highlights that emerging economies with non-negative SDG scores represent only a small share of the global government bond universe. Because of this imbalance, reallocating even a fraction of capital from large developed markets could make a meaningful difference.
Swinkels’ research shows that government bond investing, often seen as a low-impact, conservative asset class, can influence global sustainable development. By paying attention to which governments are best positioned to advance the SDGs, investors can support progress while maintaining diversified portfolios.
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For more information, please contact Ronald de Groot, Media and Public Relations Officer at Erasmus School of Economics, rdegroot@ese.eur.nl, or +31 6 53 641 846.
