We examine the pricing of sustainability-linked bonds (SLBs), where the cash flows depend on the bond issuer achieving one or more Environmental, Social and Governance (ESG) goals. Investors are willing to accept a 1–2bps lower yield due to the bond’s ESG label, providing evidence of investors caring about environmental impact. Furthermore, we find the average probability of missing the target is 14%–39% so firms set ESG targets that are easy to reach. We find that the SLB market is efficient: the prices of SLBs depend strongly on the size of the potential penalty and there is no evidence of mispricing. Finally, our results suggest that SLBs serve as financial hedges against ESG risk.

中文翻译：

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可持续发展挂钩债券的定价


我们研究了可持续发展挂钩债券 （SLB） 的定价，其中现金流取决于债券发行人实现一个或多个环境、社会和治理 （ESG） 目标。由于债券的 ESG 标签，投资者愿意接受 1-2 个基点的低收益率，这证明了投资者关心环境影响。此外，我们发现未能实现目标的平均概率为 14%-39%，因此公司设定的 ESG 目标很容易实现。我们发现 SLB 市场是有效的：SLB 的价格在很大程度上取决于潜在罚款的大小，并且没有证据表明定价错误。最后，我们的结果表明，SLB 可以作为 ESG 风险的金融对冲工具。