Not logged in.
Quick Search - Contribution
Contribution Details
| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Who Pays for Sustainability? An Analysis of Sustainability-Linked Bonds |
| Organization Unit | |
| Authors |
|
| Language |
|
| Institution | University of Zurich |
| Series Name | Swiss Finance Institute Research Paper |
| Number | 23-07 |
| Number of Pages | 47 |
| Date | 2023 |
| Abstract Text | We examine the novel phenomenon of sustainability-linked bonds (SLBs). These bonds’ coupon is linked to the issuer achieving a predetermined sustainability performance target. We estimate the yield differential between SLBs and non-sustainable counterfactuals by matching bonds from the same issuer. Our results show that in most cases investors pay for the improvement in sustainability, while issuers benefit from a sustainability premium. Our analysis suggests that the sustainability premium is larger for bonds with a higher coupon step-up and for callable bonds. We also show that there is a ‘free lunch’ for some SLB issuers, as their financial savings are higher than the potential penalty, and they have a call option to reduce this penalty. While our findings suggest that most SLBs incentivize sustainability improvements by offering a lower cost of capital, some companies that do not benefit from a sustainability premium seem to issue SLBs to signal their commitment to sustainability targets. The ‘free lunch’ however suggests that SLBs can also be a form of greenwashing, when they are issued purely for financial optimization without a real commitment to carry out sustainability improvements. |
| Free access at | DOI |
| Digital Object Identifier | 10.2139/ssrn.4007629 |
| Other Identification Number | merlin-id:22989 |
| PDF File |
Download from ZORA
|
| Export |
BibTeX
EP3 XML (ZORA)
|