TY - JOUR
T1 - Doing well while doing good
T2 - ESG ratings and corporate bond returns
AU - Gehricke, Sebastian A.
AU - Ruan, Xinfeng
AU - Zhang, Jin E.
N1 - Funding Information:
We would like to acknowledge the Climate and Energy Finance Group for strong support on this work and the Otago University Research Grant that enabled this research to be carried out.
Publisher Copyright:
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
PY - 2024/1
Y1 - 2024/1
N2 - The relationship between ESG performance and equity returns has become a popular area of research, but the same is not yet the case for bond returns. In this paper, we explore whether incorporating ESG factors, beyond emissions into the bond portfolio investment process leads to under or out performance. We find that ESG investing in bond portfolios does not lead to over or under performance. In other words, you do not have to ‘pay to do good’. Further, in the period since the Paris agreement, Energy sector bond portfolio returns are positively related to ESG factors. This finding aligns with the theoretical prediction of Pedersen, Fitzgibbons, and Pomorski (2020), namely, that the ESG-return relationship should become positive as investors become more aware of ESG risks and opportunities. Overall, we show that Bond investors can ‘do well while doing good’.
AB - The relationship between ESG performance and equity returns has become a popular area of research, but the same is not yet the case for bond returns. In this paper, we explore whether incorporating ESG factors, beyond emissions into the bond portfolio investment process leads to under or out performance. We find that ESG investing in bond portfolios does not lead to over or under performance. In other words, you do not have to ‘pay to do good’. Further, in the period since the Paris agreement, Energy sector bond portfolio returns are positively related to ESG factors. This finding aligns with the theoretical prediction of Pedersen, Fitzgibbons, and Pomorski (2020), namely, that the ESG-return relationship should become positive as investors become more aware of ESG risks and opportunities. Overall, we show that Bond investors can ‘do well while doing good’.
KW - ESG
KW - corporate bond returns
KW - responsible investing
KW - sustainable investing
UR - http://www.scopus.com/inward/record.url?scp=85148606307&partnerID=8YFLogxK
U2 - 10.1080/00036846.2023.2178624
DO - 10.1080/00036846.2023.2178624
M3 - Article
AN - SCOPUS:85148606307
SN - 0003-6846
VL - 56
SP - 1916
EP - 1934
JO - Applied Economics
JF - Applied Economics
IS - 16
ER -