Exploring the relationship between green bond pricing and ESG performance: a global analysis

This study investigates the intriguing link between green bond pricing and ESG performance using a comprehensive dataset of 13,199 monthly green bond observations between 2011 and 2019. The findings reveal a notable negative green bond premium of 11 basis points, which is consistent with prior literature when the sample is divided by issuer type, namely government and corporate. By utilizing country-level ESG scores, the study sheds light on the global relationship between ESG performance and green bond spread, unveiling that countries with strong ESG performance tend to exhibit lower green bond spreads. Additionally, better environmental performance correlates with lower green bond spreads, while countries facing climate risks tend to exhibit higher bond spreads. These results lend support to the proposed hypothesis, and robustness confirmed through additional testing. Overall, green corporate bonds are associated with lower risk levels than non-green corporate bonds, given that the former are issued to finance environmental projects. Conversely, for government-issued bonds, higher green bond costs may suggest the financing of white elephant projects favored by governments.