ESG criteria and the credit risk of corporate bond portfolios

Andre Höck (), Tobias Bauckloh (), Maurice Dumrose () and Christian Klein ()
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Andre Höck: University of Kassel’s Chair of Sustainable Finance
Tobias Bauckloh: University of Cologne and Centre for Financial Research Cologne
Maurice Dumrose: University of Kassel’s Chair of Sustainable Finance
Christian Klein: University of Kassel’s Chair of Sustainable Finance

Journal of Asset Management, 2023, vol. 24, issue 7, No 6, 572-580

Abstract: Abstract Demand for sustainable fixed-income investment solutions is surging but there is hardly research on the impact of sustainability on the risk characteristics of fixed-income portfolios. This study examines the impact of sustainability on the credit risk exposure of corporate bond portfolios between 2013 and 2020 by analyzing the returns of sustainable and non-sustainable portfolios using two different asset pricing models and environmental, social, and governance (ESG) ratings from different providers. Controlling for a set of portfolio characteristics, our results show that sustainable portfolios are significantly less exposed to credit risk than their non-sustainable peer portfolios. This finding implies that considering ESG criteria in portfolio management is a suitable means to systematically manage credit risk. Being the first study to investigate the relationship between sustainability and credit risk on a portfolio level, this study contributes to the understanding of the effects of ESG criteria in portfolio management and provides academics and investment professionals with valuable insights.

Keywords: Sustainability; Credit Risk Management; Corporate Bonds (search for similar items in EconPapers)
JEL-codes: G12 G32 Q56 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41260-023-00337-w

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