Sustainability and Credit Spreads in Japan

Tatsuyoshi Okimoto and Sumiko Takaoka

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Does the market value the environmental, social, and governance (ESG) performance of firms in corporate bond credit spreads? In this study, we construct the firm-level corporate bond credit spread based on the ‘bottom-up’ approach and examine the relationship between corporate ESG performance and credit spreads. Our results indicate that the ESG performance significantly decreases the credit spreads and the effects of ESG performance increase with the recognition of the importance of ESG investing regardless of the pillar. Furthermore, our analysis suggests differential trends across the issuing firms’ credit quality. Specifically, the ESG performance has a much higher impact on the credit spreads for lowly-rated firms, implying that the information on higher ESG scores could be a stronger signal for higher sustainability for those firms that are considered to have higher default risk from the financial information. Within the E, S, and G pillars, the resource use category, human rights category, and management category respectively show the most prominent annual lowering effects.

Keywords: Corporate bond spread; ESG investing; Sustainability (search for similar items in EconPapers)
JEL-codes: G12 M14 Q56 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-09
New Economics Papers: this item is included in nep-env
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https://cama.crawford.anu.edu.au/sites/default/fil ... _okimoto_takaoka.pdf

Related works:
Chapter: Sustainability and Credit Spreads in Japan (2024)
Journal Article: Sustainability and credit spreads in Japan (2024)
Working Paper: Sustainability and Credit Spreads in Japan (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2023-44

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