ESG and corporate bond spreads

Two papers look at ESG in the U.S. corporate bond market. The 2023 Journal of Management in Engineering paper, selected as Editor’s Choice, uses interpretable machine learning on bonds issued from 2010 to 2021. It finds an average ESG benefit of about 10 basis points. Social and governance scores account for more of that benefit than environmental scores. In architecture, engineering, and construction industries, the discount runs more through environmental and governance scores.

The 2024 Journal of Sustainable Finance and Investment paper uses propensity score matching. Bonds of MSCI-rated ESG leaders issued from 2010 to 2020 were priced about 14.3 basis points tighter than laggards in the primary market. The gap remains in the secondary market. ESG disclosure, as distinct from ESG performance, had little effect on the spread.