Issuing bonds during the Covid-19 pandemic: is there an ESG premium?
Fabrizio Ferriani ()
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Fabrizio Ferriani: Bank of Italy
No 1392, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
We rely on the ESG ratings assigned by four distinct agencies (MSCI, Refinitiv, Robeco, and Sustainalytics) to study the link between ESG scores and firms' cost of debt financing during the Covid-19 pandemic. We document the existence of a statistically and economically significant ESG premium, i.e. better rated companies access debt at a lower cost. Despite some differences across rating agencies, this result is robust to additional controls for the issuers' credit standing as well as several bond and issuer characteristics. We find that this effect is mainly driven by firms domiciled in advanced economies, whereas creditworthiness considerations prevail for firms in emerging markets. Lastly, we show that the lower cost of capital for highly rated ESG firms is explained both by investors' preference for more sustainable assets and by risk-based considerations unrelated to firms' creditworthiness, such as exposure to climate change risks.
Keywords: ESG scores; Covid-19; bond yield spreads; risk channel; non-pecuniary channel (search for similar items in EconPapers)
JEL-codes: G12 G23 G32 G4 (search for similar items in EconPapers)
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