arXiv AI October 28, 2026 By Sourav Bose, Taoufik Bouraoui

Beyond Greenwashing: Algorithmic Resilience and the Non-Linear Governance Premium in Sovereign Capital Flows

The paper shows that sovereign ESG metrics are mispriced by linear macro‑financial models during systemic shocks, revealing a fundamentally non‑linear risk transmission. Using a gradient‑boosting model on 147 sovereigns from 2010‑2024, forecast errors are reduced by over 39% during extreme macro events. The study identifies a strict, non‑linear "Governance Premium"—environmental and social gains provide no capital advantage until a regulatory threshold is crossed—and offers regime‑conditional uncertainty bounds that remain valid even with severe ESG reporting failures.

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