The impact of ESG rating on corporate bond yields

Abstract

This paper is to investigate whether markets assess corporate bonds riskier if their issuers have lower ESG (Environmental Social Governance) scores. For the study we used the corporate yield curves of Refinitiv further segmented by credit rating. The added risk of the ESG factor was measured in the time horizon of 2015 to 2020. It has turned out that in the USA in the group of the best debtor companies by Moody’s investors expected companies with the lowest ESG scores to provide a 35 basis point higher risk premium compared to their counterparts with the highest ESG scores. This statement is also valid for the E, S and G-rating separately. In line with another trend, the riskier your credit rating category, the lower is the risk premium caused by the lack of responsible management.