Environmental, Social and Governance (ESG) Performance and Sovereign Bond Spreads: An Empirical Analysis of OECD Countries

62 Pages Posted: 26 Nov 2016

See all articles by Gunther Capelle-Blancard

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); PSB Paris School of Business

Patricia Crifo

Ecole Polytechnique, Paris - Laboratoire d'Econometrie; Université Paris X Nanterre - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Marc‐Arthur Diaye

Université d'Evry Val d'Essonne

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Rim OUEGHLISSI

Université d'Évry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE)

Date Written: November 22, 2016

Abstract

What are the determinants of borrowing cost in international capital markets? Apart from macroeconomic fundamentals, are there any qualitative factors that might capture sovereign bond spreads? In this paper we consider to what extent Environmental, social and governance (ESG) performance can affect sovereign bond spreads. First, countries with good ESG performance tend to have less default risk and thus lower bond spreads. Moreover, the economic impact is stronger in the long-run, suggesting that ESG performance is a long-lasting phenomenon. Second, we examine the financial impact of separate ESG dimensions, and find that the environmental dimension appears to have no financial impact whereas governance weighs more than social factors. Third, we examine cross-countries differences and show that ESG performance has a more significant and stronger impact in the Eurozone than elsewhere in OECD countries. Fourth, we include evidence from the global financial crisis and find stronger influence of country sustainability performance during crisis period.

Keywords: ESG Performance, Sovereign Bond Yield Spreads

JEL Classification: G11, F34

Suggested Citation

Capelle-Blancard, Gunther and Crifo, Patricia and Diaye, Marc‐Arthur and Scholtens, Bert and OUEGHLISSI, Rim, Environmental, Social and Governance (ESG) Performance and Sovereign Bond Spreads: An Empirical Analysis of OECD Countries (November 22, 2016). Available at SSRN: https://ssrn.com/abstract=2874262 or http://dx.doi.org/10.2139/ssrn.2874262

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

Patricia Crifo

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

Route de Saclay
Palaiseau, 91128
France

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Marc‐Arthur Diaye

Université d'Evry Val d'Essonne

Boulevard François Mitterrand
Evry, Ile de France 91025
France

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Rim OUEGHLISSI (Contact Author)

Université d'Évry - Centre D'Etudes des Politiques Economiques et de L'Emploi (EPEE) ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

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