Issuing Bonds during the COVID-19 Pandemic: Is There An ESG Premium?
33 Pages Posted: 28 Feb 2022 Last revised: 26 Jul 2022
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Issuing Bonds during the COVID-19 Pandemic: Is There An ESG Premium?
Issuing Bonds During the Covid-19 Pandemic: Is There an ESG Premium?
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: Suggested Citation