Do ESG Bonds Signal Lower Climate Transition Risk Exposure? Evidence from the Korean Market

This study examines whether the first-time issuance of environmental, social, and governance (ESG) bonds by Korean listed firms is priced by the stock market as a signal of reduced climate transition risk.Using a sample of 46 first-time ESG bond issuers from 2019 to 2021, including 44 firms with sufficient return histories for the main CAR analysis, alongside firm-level measures of climate risk exposure, this study finds no evidence that investors interpret issuance as a positive climate risk signal.Stock returns around issuance dates are, if anything, negative rather than positive, and are statistically insignificant in the main event window under the cross-sectional-correlation adjustment used here.This study does not detect statistically significant heterogeneity between highcarbon and other issuers; the negative point estimates are more pronounced among nonfinancial issuers.Although firms' climate risk exposure appears lower after issuance in simple before-after comparisons, the decline largely precedes issuance and the matched difference-in-differences estimates for climate risk exposure are statistically insignificant.The findings have the following limitations: the effective samples are small (44 firms for the main CAR analysis and 20 matched pairs in the supplementary DiD analysis) and clustered in 2021; the issuance date provides a less precise event date than an announcement date; and the matched design has limited common support.The findings indicate an absence of detectable effects rather than evidence of no effect, and no causal interpretation is drawn.The pattern is consistent with ESG bond issuance in the Korean market reflecting issuer selection and financing needs rather than a credible climate risk signal, an interpretation that is not directly tested here.