COVID‐19 and ESG preferences: Corporate bonds versus equities

Abstract

I examine investors' within ESG investment preferences during the COVID-19 pandemic by investigating the return spillover effects across the three different corporate bonds and equities-based investment strategies. Investors prefer making investments in ESG leaders in the investment-grade corporate bond market over ESG leaders in the equity and high yield corporate bond markets during times of uncertainty. It suggests that capital flows away from high yield corporate bond and equity markets to the investment-grade corporate bond market. Investors find refuge in firms with relatively higher ESG ratings and creditworthiness in the fixed income market over the equity market during crisis periods.

Perspective Chapter: The Environmental, Social, and Governance (ESG) Investment and Its Implications

“…Naeem et al [40] find similar evidence that during the market stress, such as the COVID-19 market shock, green bonds provide significant diversification benefits and are able to absorb the turbulent of market downfall. This is also consistent with the evidence that during the COVID-19 pandemic, there were investment preferences in ESG leaders in investment grade bonds over ESG leaders in the equity and high-yield bond markets [41].…”

Local green finance policies and corporate ESG performance

“…This study mainly uses the ESG rating from 2011 to 2020 from the Sino‐Securities Index Information Service 4 as the explained variable for two main reasons. On the one hand, although several international institutions have conducted ratings based on corporate ESG information disclosure (Tang et al, 2022), such as Refinitiv Asset4 (Arora et al, 2022; Barros et al, 2022; Martins, 2022), MSCI (Lioui & Tarelli, 2022; Singh, 2022), and Bloomberg (Huang et al, 2022; Zhang et al, 2021), they are relatively poorly matched with China's domestic development and market characteristics. In response, China's Sino‐Securities Index Information Service launched ESG ratings in line with the characteristics of the Chinese market, which have been cited in numerous studies (Li, Hu, & Hong, 2022; Li, Zhang, & Zhao, 2022).…”

“…Some studies mainly discuss the role of ESG disclosure. For example, ESG disclosure can be used as a basis for investments in uncertain times (Singh, 2022), improve information efficiency, and reduce company-specific risks (He, Qin, et al, 2022). Other studies explore the factors influencing ESG disclosure, including M&A transactions (Barros et al, 2022), natural disasters (Huang et al, 2022), and corporate competition (Martins, 2022).…”

Resilience to Crude Oil: Australian Evidence on Litigation Funding

“…By using the generalized forecast error variance decompositions (FEVDs), the return spillover effects capture cross-market return shocks in terms of their total contribution (Singh & Singh, 2016;Singh & Kaur, 2017;Singh, 2020;Singh, 2021;Singh, 2022). The generalized version captures percentage of variance to variable i due to innovations to variable j.…”