Sustainability Bonds. An International Event Study

Abstract

Sustainability bonds enable capital-raising and investment for those projects that have both a positive impact on the environment and a positive social outcome. This study examines the stock market reaction to the announcement of sustainability bonds issuance. The present research is designed as follows: first, an event study that examines the market reaction and second, a highlight of drivers influencing this market reaction via a linear regression with cluster-robust standard errors. Overall, small and negative sample-wide reactions to sustainability bond issue announcements were found. Additionally, the study finds significant negative abnormal returns before the publication in June 2018 of The Sustainability Bond Guidelines by the International Capital Market Association. Specifically, the size of the bond issue, whether the bond is callable or not, the announcement of the issue as a single event in a day, the company’s Return on Assets, the firm’s social disclosure score, and the issuance of the bond prior or after June 2018 are statistically significant factors that influence the stock returns of issuers.

An empirical analysis of corporate sustainability bonds

“…Increased investor awareness will make sustainability bonds a popular investment opportunity. This finding supports previous studies that examine investors who integrate ESG criteria into their investments (Juddoo et al, 2023; Mocanu et al, 2021; Starks et al, 2018). For firms, the findings of this study will inform them on how sustainability issuances would make the firms more appealing and attractive to ESG investors, thus enabling firms to expand their investor base.…”

“…Several studies adopt an event study methodology to analyse issues related to CSR (Capelle‐Blancard & Laguna, 2010; Deng et al, 2013; Flammer, 2013). Mocanu et al (2021) document that the event study methodology is the most suitable method to assess the impact of selected events. Accordingly, we use this methodology to assess how the stock market responds to the announcement of corporate sustainability bonds and traditional bonds.…”

“…There is limited literature that examines sustainability bonds (Mocanu et al, 2021). Mocanu et al (2021) use an event study methodology around the announcement date of sustainability bond issuance and find that there is a negative stock market reaction in the short term. They argue that this may be due to uncertainties about profitability outcomes.…”

“…They argue that examining environmental and societal objectives is critical as both initiatives will impact firm performance. A recent study by Mocanu et al (2021) investigates a sample of sustainability bonds. They find a small and adverse reaction to the sustainability bond issue announcement.…”

Analyzing Trends in Green Financial Instrument Issuance for Climate Finance in Capital Markets

“…Their overall focus is on the relationship between financial markets, including conventional financial, Islamic, commodities, bond, and clean energy markets, as well as the influence of crises and green financial instrument issuances on markets, as addressed under the keywords co-occurrence network. Other researchers contributing to the highest centrality include (Mocanu et al 2021), who applied the event study methodology to assess the stock market reaction to sustainability bond issuances and found a small negative impact. Another group of researchers evaluated the connection between green financing and environmental sustainability on economic growth and green recovery.…”