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ESG Performance and Corporate Bond Spreads

Windmar, Carl LU (2023) NEKH01 20231
Department of Economics
Abstract
This paper examines the impact of ESG performance on corporate bonds spreads.
The spreads are determined by the risk factors of the investment and the demand by
the capital markets. It is therefore analysed whether ESG affects these determinants.
The hypothesis is that increased ESG performance should lead to lower bond
spreads because it has a positive effect on risk mitigation and investor demand. This
is tested on 981 corporate bonds from the EMU issued during the time period
2015-2023. The empirical findings support this hypothesis showing a negative
correlation between ESG performance and bond spreads. This is true for the
combined ESG score and the individual pillars E, S and G. Conclusively, this study
suggests that... (More)
This paper examines the impact of ESG performance on corporate bonds spreads.
The spreads are determined by the risk factors of the investment and the demand by
the capital markets. It is therefore analysed whether ESG affects these determinants.
The hypothesis is that increased ESG performance should lead to lower bond
spreads because it has a positive effect on risk mitigation and investor demand. This
is tested on 981 corporate bonds from the EMU issued during the time period
2015-2023. The empirical findings support this hypothesis showing a negative
correlation between ESG performance and bond spreads. This is true for the
combined ESG score and the individual pillars E, S and G. Conclusively, this study
suggests that investors prefer investments with high ESG performance. From a
management's perspective, the results indicate that investments in ESG will reduce
the cost of debt issuing for the company. (Less)
Please use this url to cite or link to this publication:
author
Windmar, Carl LU
supervisor
organization
course
NEKH01 20231
year
type
M2 - Bachelor Degree
subject
keywords
ESG, Financial Performance, Z-spread, Bonds
language
English
id
9120207
date added to LUP
2024-01-22 15:40:25
date last changed
2024-01-22 15:40:25
@misc{9120207,
  abstract     = {{This paper examines the impact of ESG performance on corporate bonds spreads.
The spreads are determined by the risk factors of the investment and the demand by
the capital markets. It is therefore analysed whether ESG affects these determinants.
The hypothesis is that increased ESG performance should lead to lower bond
spreads because it has a positive effect on risk mitigation and investor demand. This
is tested on 981 corporate bonds from the EMU issued during the time period
2015-2023. The empirical findings support this hypothesis showing a negative
correlation between ESG performance and bond spreads. This is true for the
combined ESG score and the individual pillars E, S and G. Conclusively, this study
suggests that investors prefer investments with high ESG performance. From a
management's perspective, the results indicate that investments in ESG will reduce
the cost of debt issuing for the company.}},
  author       = {{Windmar, Carl}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{ESG Performance and Corporate Bond Spreads}},
  year         = {{2023}},
}