ESG versus conventional bonds

: a comparative analysis of primary market spreads

Abstract

This study aims to investigate if corporate ESG bonds trade at a premium vis-à-vis comparable conventional bonds in primary markets. Then we split our data into the pre-COVID-19 and COVID-19 periods to execute the same analysis. We also examine if the main factors impacting corporate ESG bonds' spread are the same as for conventional bonds. Using data from bonds issued by 8,267 companies, denominated in 30 different currencies, across 17 sectors, from 2012 to 2022, and employing an OLS regression, we find no evidence of a premium in corporate ESG bonds in comparison to conventional bonds, neither during the pre-COVID-19 or COVID-19 period. Finally, evidence shows that credit ratings are the main driver in explaining the spread of conventional bonds. However, according to our research, they do not influence ESG bond spreads. ESG bond spreads drivers include subordination level, maturity, transaction size, number of tranches, currency risk, callable, and market volatility.

Date of Award	27 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	João Pinto (Supervisor)