Pricing of sustainability-linked bonds
Feldhütter, Peter and Halskov, Kristoffer and Krebbers, Arthur (2024) Pricing of sustainability-linked bonds. Journal of Financial Economics, 162. 103944. ISSN 0304-405X (https://doi.org/10.1016/j.jfineco.2024.103944)
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Abstract
We examine the pricing of sustainability-linked bonds (SLBs), where the cash flows depend on the bond issuer achieving one or more Environmental, Social and Governance (ESG) goals. Investors are willing to accept a 1–2bps lower yield due to the bond’s ESG label, providing evidence of investors caring about environmental impact. Furthermore, we find the average probability of missing the target is 14%–39% so firms set ESG targets that are easy to reach. We find that the SLB market is efficient: the prices of SLBs depend strongly on the size of the potential penalty and there is no evidence of mispricing. Finally, our results suggest that SLBs serve as financial hedges against ESG risk.
ORCID iDs
Feldhütter, Peter, Halskov, Kristoffer and Krebbers, Arthur ORCID: https://orcid.org/0000-0001-8795-1308;-
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Item type: Article ID code: 90570 Dates: DateEventDecember 2024Published12 September 2024Published Online6 September 2024AcceptedSubjects: Social Sciences > Economic Theory Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 16 Sep 2024 10:20 Last modified: 25 Sep 2024 15:19 Related URLs: URI: https://strathprints.strath.ac.uk/id/eprint/90570