Are ESG Ratings Associated With Firm Performance and Corporate Green Bond Issuance?

This paper explores the relationship between Environment, Social, and Governance (ESG) ratings and their effects on performance as well as corporate green bond issuance. Even though ESG scores have been around for decades, they have only recently become a popular investing subject. Companies like MSCI, Refinitiv, and Bloomberg have emerged as leaders in this space to provide data and weighted scores for each of the Environmental, Social, and Governance spaces, and combining them all into one ESG score for a company. Green bonds on the other hand started in around 2007. This market has grown substantially within the past decade. Since sustainable investing is a relatively new subject, there is a lack of literature and previous studies done on the topic. However, there have been some studies that have looked into ESG and green bonds' impact on performance and pricing. For example, Buallay (2017) looks into ESG scores and their impact on performance with a focus on the European banking sector. Other studies on the green bond market have also looked into the pricing and ownership of green bonds relative to conventional ones. By utilizing data from the Bloomberg Terminal, this paper finds that there is no statistically significant relationship between ESG rating and financial performance, and suggests a negative relationship between ESG rating and Green Bond Issuance. These findings suggest that there is no reason that one should not invest in higher ESG rated companies as they do not impact financial performance.

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Union College (Schenectady, N.Y.). Department of Economics