Work

ESG incidents and corporate green bond market reaction

Year: 2025

Type: article

Abstract: This paper examines how the secondary market for corporate green bonds reacts to the announcement of Environmental, Social and Governance (ESG) incidents. We compare the cumulative abnormal returns (CARs) of green bonds with those of similar conventional bonds issued by the same firm, using a large international sample covering the period 2013–2022. Our results indicate that the performance of both green and conventional bonds declines after an ESG incident, but the decline is more pronounced for conventional bonds. We attribute this finding to the cost-effectiveness motive driving investors’ response to the ESG incident, as we find that a) there is no green premium (at issuance) in our sample, and b) green bonds are, on average, less liquid than conventional bonds, making the latter easier to sell due to lower transaction costs. Consistent with this argument, we observe opposite findings − namely, no significant performance differences and conventional bonds outperforming green bonds after the ESG incident − only in cases where green bonds exhibit higher liquidity, such as those issued by European firms or those compliant with the Climate Bond Initiative (CBI) standards.

Source: Journal of International Financial Markets Institutions and Money

DOI: 10.1016/j.intfin.2025.102178

Authors: Matteo Cotugno, Paolo Fiorillo, Stefano Monferrà, Sabrina Severini

Institutions: Università Cattolica del Sacro Cuore, University of Urbino

Language: English

Topic: Sustainable Finance and Green Bonds

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $2,930