Sustainable Bonds

Abstract

This study examines the performance of corporate sustainable bonds. Unlike traditional bonds, the proceeds of sustainable bonds are utilized for financing projects to bring about environmental and socio-economic benefits. First, we analyse the market reaction to traditional and sustainable bond issuance announcements. We document that the market reaction to sustainable bonds announcement is stronger than traditional bonds and the results are consistent across all the event windows. We also find that the environmental and social performance of the firm improves post issuance as reflected in the firms’ higher ESG ratings and conclude that ESG ratings are the primary performance drivers for firms that issue sustainable bonds. Overall, the findings suggest that by issuing sustainable bonds, firms show their commitment towards environmental and societal benefits and thus benefit from the stock market reaction.

Keywords: sustainable bonds, traditional bonds, ESG, CSR, sustainable finance

JEL Classification: G3; G30; G39