Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries

Gunther Capelle-Blancard (1) , Patricia Crifo (2, 3, 4) , Marc-Arthur Diaye (1) , Rim Oueghlissi (5, 6) , Bert Scholtens (7, 8)

1 CES - Centre d'économie de la Sorbonne
2 X - École polytechnique
3 CIRANO - Centre interuniversitaire de recherche en analyse des organisations
4 EconomiX - EconomiX
5 UCAR - Université de Carthage (Tunisie)
6 EPEE - Centre d'Etudes des Politiques Economiques
7 University of Saint Andrews
8 Faculty of Economics and Business

What are the determinants of borrowing cost in international capital markets? Apart from macroeconomic fundamentals, are there any qualitative factors that might capture sovereign bond spreads? In this paper we consider to what extent Environmental, social and governance (ESG) performance can affect sovereign bond spreads. First, countries with good ESG performance tend to have less default risk and thus lower bond spreads. Moreover, the economic impact is stronger in the long-run, suggesting that ESG performance is a long-lasting phenomenon. Second, we examine the financial impact of separate ESG dimensions, and find that the environmental dimension appears to have no financial impact whereas governance weighs more than social factors. Third, we examine cross-countries differences and show that ESG performance has a more significant and stronger impact in the Eurozone than elsewhere in OECD countries. Fourth, we include evidence from the global financial crisis and find stronger influence of country sustainability performance during crisis period.

Mots clés: ESG performance; sovereign bond yield spreads

Domaines: Economies et finances

Gunther Capelle-Blancard, Patricia Crifo, Marc-Arthur Diaye, Rim Oueghlissi, Bert Scholtens. Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries. 2016. ⟨hal-01401718⟩