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ESG Scores and the Credit Market

Department of finance, Hanyang University Business School, Seoul 04763, Korea
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Sustainability 2020, 12(8), 3456; https://doi.org/10.3390/su12083456
Received: 25 March 2020 / Revised: 21 April 2020 / Accepted: 22 April 2020 / Published: 23 April 2020
(This article belongs to the Section Economic and Business Aspects of Sustainability)
This study analyzes the relationship between Environmental, Social and Governance (ESG) scores and bond returns using the corporate bond data in Korea during the period of 2010 to 2015. We find that ESG scores include valuable information about the downside risk of firms. This effect is particularly salient for the firms with high information asymmetry such as small firms. Interestingly, of the three ESG criteria, only environmental scores show a significant impact on bond returns when interacted with the firm size, suggesting that high environmental scores lower the cost of debt financing for small firms. Finally, ESG is complementary to credit ratings in assessing credit quality as credit ratings cannot explain away ESG effects in predicting future bond returns. This result suggests that credit rating agencies should either integrate ESG scores into their current rating process or produce separate ESG scores which bond investors integrate with the existing credit ratings by themselves. View Full-Text
Keywords: bond; credit rating; ESG; fixed income; funding cost; information asymmetry bond; credit rating; ESG; fixed income; funding cost; information asymmetry
MDPI and ACS Style

Jang, G.-Y.; Kang, H.-G.; Lee, J.-Y.; Bae, K. ESG Scores and the Credit Market. Sustainability 2020, 12, 3456. https://doi.org/10.3390/su12083456

AMA Style

Jang G-Y, Kang H-G, Lee J-Y, Bae K. ESG Scores and the Credit Market. Sustainability. 2020; 12(8):3456. https://doi.org/10.3390/su12083456

Chicago/Turabian Style

Jang, Ga-Young, Hyoung-Goo Kang, Ju-Yeong Lee, and Kyounghun Bae. 2020. "ESG Scores and the Credit Market" Sustainability 12, no. 8: 3456. https://doi.org/10.3390/su12083456

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