An empirical analysis of corporate sustainability bonds

Abstract

This study examines the performance of worldwide corporate sustainability bonds issued from 2014 to 2020. Unlike traditional bonds, the proceeds of sustainability bonds are utilised for financing projects to bring about environmental and socio-economic benefits. We analyse the short-term market reaction to announcements of sustainability and traditional bond issuance and document that the stock market reaction to an announcement of sustainability bonds is stronger than that for traditional bonds. We also find that multiple issuers of sustainability bonds achieve a more favourable market reaction than single issuers. Finally, we examine if environmental, social and governance (ESG) scores can positively and significantly impact the corporate performance of firms through the lens of sustainability bond issuances. We find that ESG scores are the primary performance drivers for firms, and the effect is more pronounced for firms that issue sustainability bonds. Overall, the results suggest that issuers of sustainability bonds show their commitment towards environmental and societal goals and thus benefit from favourable stock market reactions.