Empirical evidence of ESG premium in the U.S. corporate bond market: a propensity score matching approach

Dan Li, Kenneth Chung and Peter Adriaens

Journal of Sustainable Finance & Investment, 2025, vol. 15, issue 1, 52-76

Abstract: This study aims to explore the connection between ESG scores and corporate bond performance, particularly credit spreads, by adopting a propensity score matching (PSM) approach, enabling a balanced comparison between a control group and one exposed to the ESG treatment effect. The results indicate that bonds issued between 2010 and 2020 by MSCI-rated ESG leaders across all industry sectors are priced at an average lower credit spread of 14.3 basis points (bps) relative to laggards, in the primary market. This credit spread difference persists in the secondary market and increases further when bonds of financial issuers are separated from non-financial sectors. In contrast, the impact of ESG disclosure on bond credit spread results is negligible. The willingness of investors to accept a discount on the credit spreads of a bond issued by highly rated companies offers potential incentives for broader adoption of ESG performance assessment.

Date: 2025
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DOI: 10.1080/20430795.2024.2426485

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