Empirical evidence of ESG premium in the U.S. corporate bond market: a propensity score matching approach

This study aims to explore the connection between ESG scores and corporate bond performance, particularly credit spreads, by adopting a propensity score matching (PSM) approach, enabling a balanced comparison between a control group and one exposed to the ESG treatment effect. The results indicate that bonds issued between 2010 and 2020 by MSCI-rated ESG leaders across all industry sectors are priced at an average lower credit spread of 14.3 basis points (bps) relative to laggards, in the primary market. This credit spread difference persists in the secondary market and increases further when bonds of financial issuers are separated from non-financial sectors. In contrast, the impact of ESG disclosure on bond credit spread results is negligible. The willingness of investors to accept a discount on the credit spreads of a bond issued by highly rated companies offers potential incentives for broader adoption of ESG performance assessment.

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Publication Details

Journal
Journal of Sustainable Finance & Investment
Published
2024-11-13
DOI
https://doi.org/10.1080/20430795.2024.2426485
Citations
3
Primary Topic
Credit Risk and Financial Regulations
Type
article
Field-Weighted Citation Impact
1.08

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article

Empirical evidence of ESG premium in the U.S. corporate bond market: a propensity score matching approach

Dan Li, Peter Adriaens, Kenneth Hsien Yung Chung
3 citations
Journal of Sustainable Finance & Investment
Credit Risk and Financial Regulations
1.08
article

Empirical evidence of ESG premium in the U.S. corporate bond market: a propensity score matching approach

Dan Li, Peter Adriaens, Kenneth Hsien Yung Chung
article en
3 citations

Abstract

This study aims to explore the connection between ESG scores and corporate bond performance, particularly credit spreads, by adopting a propensity score matching (PSM) approach, enabling a balanced comparison between a control group and one exposed to the ESG treatment effect. The results indicate that bonds issued between 2010 and 2020 by MSCI-rated ESG leaders across all industry sectors are priced at an average lower credit spread of 14.3 basis points (bps) relative to laggards, in the primary market. This credit spread difference persists in the secondary market and increases further when bonds of financial issuers are separated from non-financial sectors. In contrast, the impact of ESG disclosure on bond credit spread results is negligible. The willingness of investors to accept a discount on the credit spreads of a bond issued by highly rated companies offers potential incentives for broader adoption of ESG performance assessment.

Journal of Sustainable Finance & InvestmentVol. 15(1)
University of Michigan (US)
University of Michigan
Openalex Percentile: Top 20%
Credit Risk and Financial Regulations
1.08
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