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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可持续发展相关债券的定价


我们研究了可持续发展相关债券（SLB）的定价，其中现金流量取决于债券发行人实现一项或多项环境、社会和治理（ESG）目标。由于该债券的 ESG 标签，投资者愿意接受 1-2 个基点的较低收益率，这提供了投资者关心环境影响的证据。此外，我们发现未能实现目标的平均概率为 14%–39%，因此企业设定了易于实现的 ESG 目标。我们发现 SLB 市场是有效的：SLB 的价格很大程度上取决于潜在惩罚的大小，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。