Companies that follow ESG criteria issue bonds at lower rates
Study by the Vanvitelli and Reggio Calabria universities: sustainability confers not only reputational but also financial benefits
by Antonio Meles * and Antonio Ricciardi**
Companies that integrate responsibility principles into their business processes, taking into account environmental, social and governance factors (so-called ESG criteria), benefit from an interest rate that is around 10 basis points lower than less sustainable issuers when issuing bonds. These are the main findings of a survey based on an international sample of more than 25,000 bonds issued between 2002 and 2024 by about 2,700 companies with both credit and ESG ratings.
This is evidence that corporate investments in the processes of ecological transition, social inclusion and corporate governance give companies not only a reputational return but also benefits of a financial nature, impacting directly on the cost of funding and indirectly on profitability margins.
According to the study, bond underwriters do not look indiscriminately at the three pillars of sustainability: the companies that are most active in the areas of social responsibility and environmental impact mitigation are those that are able to obtain better terms in terms of interest rates.
The characteristics of the financial circuits in which issuers and underwriters exchange financial resources also affect the intensity of the benefits obtained by the most virtuous companies. In particular, according to the study, the return differentials in favour of companies with better ESG performance are more pronounced in countries with more developed capital markets and legal systems that guarantee full protection of credit rights. The research shows, in fact, that the greater informational transparency of more mature financial markets makes it easier for investors to incorporate ESG factors into bond pricing and, consequently, to demand lower rates from issuing companies; furthermore, the greater protection of credit rights, typical of some legal systems, makes bond subscribers more likely to recognise a premium linked to extra-financial risk mitigation factors such as, for example, investments in the areas of sustainability.
The EU legislator has also played an important role in improving the conditions for more sustainable companies to access the capital market. One example of this is the Sustainable Finance Disclosure Regulation (SFDR), which has imposed greater disclosure obligations on institutional investors on how they integrate ESG factors into their investment decisions. Research results show, in fact, that the entry into force of the SFDR in March 2021 has led to a significant increase in the cost-of-funding differential between companies with high ESG performance and others (with the gap between the two categories reaching almost 18 basis points).
