Who Pays for Sustainability? An Analysis of Sustainability-Linked Bonds

Julian F Kölbel and Adrien-Paul Lambillon
Additional contact information
Julian F Kölbel: University of St. Gallen - School of Finance; MIT Sloan; Swiss Finance Institute
Adrien-Paul Lambillon: University of Zurich - Department of Banking and Finance

No 23-07, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine the novel phenomenon of sustainability-linked bonds (SLBs). These bonds’ coupon is contingent on the issuer achieving a predetermined sustainability performance target. We estimate the yield differential between SLBs and non-sustainable counter-factuals by matching bonds from the same issuer. Our results suggest that issuing an SLB yields an average premium of -9 basis points on the yield at issue compared to a conventional bond, although this premium decreased over time. On average, the savings from this reduction in the cost of debt exceed the maximum potential penalty that issuers need to pay in case of failure of the sustainability performance target. This suggests that SLB issuers can benefit from a ’free lunch’, i.e. a financial benefit despite not reaching the target. Investigating the drivers of the premium, we show that there is no clear empirical relationship between the yield at issue and the coupon step-up agreement of SLBs. Instead, an issuer’s first SLB seems to command a significantly larger premium, suggesting that especially the first SLB is seen by investors as a credible signal of a company’s commitment to sustainability.

Keywords: Sustainable investing; ESG; sustainability-linked bonds; impact; greenwashing (search for similar items in EconPapers)
Pages: 49 pages
Date: 2023-02
New Economics Papers: this item is included in nep-env and nep-mfd
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4007629 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2307

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().