Do good, get paid: an analysis of the social bond market

Abstract We analyze the niche market for social bonds and empirically investigate the existence of a negative social bond premium. Using a bond matching method, we compare the i-spreads of 280 social bonds over a one-year period with those of their conventional counterparts, resulting in 50,465 observations for social bonds and 100,930 for conventional bonds. Additionally, we examine the influence of specific bond and issuer characteristics, as well as time variables, on the negative premium. Our results indicate that social bonds trade marginally tighter than conventional bonds, with a smaller issue size and slightly higher volatility. Further analysis shows that ESG assurance, region, and timing impact the negative premium. Over time, the negative premium diminishes, which may be due to shifts in capital away from sustainable investments.