Issuing Bonds during the COVID-19 Pandemic: Is There An ESG Premium?

33 Pages Posted: 28 Feb 2022 Last revised: 26 Jul 2022

Multiple version iconThere are 2 versions of this paper

Date Written: July 25, 2022

Abstract

We rely on the ESG ratings assigned by four distinct agencies (MSCI, Refinitiv, Robeco, and Sustainalytics) to study the link between ESG scores and firms' cost of debt financing during the Covid-19 pandemic. We document the existence of a statistically and economically significant ESG premium, i.e. better rated companies access debt at a lower cost. Despite some differences across rating agencies, this result is robust to the inclusion of issuer's credit standing as well as several bond and firms' characteristics. We find that the effect is mainly driven by firms domiciled in advanced economies whereas creditworthiness considerations prevail for firms in emerging markets. Lastly, we show that the lower cost of capital for highly rated ESG firms is explained by both investors' preference towards more sustainable assets and by risk-based considerations unrelated to firms' creditworthiness.

Keywords: ESG scores, COVID-19, bond yield spreads, risk channel, non-pecuniary channel

JEL Classification: G12, G23, G32, G4

Suggested Citation

Ferriani, Fabrizio, Issuing Bonds during the COVID-19 Pandemic: Is There An ESG Premium? (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=4042802 or http://dx.doi.org/10.2139/ssrn.4042802

Fabrizio Ferriani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
245
Abstract Views
1,420
Rank
200,871
PlumX Metrics