ESG ratings, promoted banks pay less for debt
Bankitalia's report on the bonds of 130 euro area banks: a single increase in the Esg score generates a bond spread decline of more than 11 per cent
3' min read
3' min read
Sustainability pays. In fact, it pays less, if we are talking about banks and their financing costs. For banks, a single increase in the ESG score by agencies such as Msci can generate a bond spread decrease of up to -11.52 per cent.
Evidence comes from the report "Do Esg ratings matter for banks' cost of funding? An empirical investigation", by Bank of Italy. The analysis, by Stefano Nobili, Mattia Persico and Rosario Romeo, examines two categories of data. On the one hand, bonds issued by more than 130 euro area banks located in 13 different countries, including Italy. On the other, the ESG ratings assigned to credit institutions by three major specialised agencies: Msci, Refinitiv Eikon and Morningstar. All this over a long period of time, from 2015 to 2022.
The report
.The data highlighted by the study are expressed in technical terms, but the summary of the results is quite clear: in the medium to long term, the most virtuous banks, which manage to improve their ESG rating, also become more attractive to investors. And thus the cost of their debt falls, whether it is bonds sold on the primary market or the spread of securities already in circulation.
The Bank of Italy study shows that an improvement in ratings has a much stronger impact than a downgrade. "The effects of downgrades and upgrades are not symmetrical," comment the study's authors. "The cost of a bank's debt is more persistently sensitive to increases in ESG scores than to decreases. In other words, investors are more ready and willing to reward virtuous banks than to punish those with deteriorating sustainability policies.
Who weighs more: E, S or G?
.Another outcome of the survey emerges by isolating the impact of the ESG factors. Of the three, the most relevant for banks is precisely G: credit institutions that are more attentive to governance face fewer risks of legal disputes, and are overall better managed even in the face of the prospect of crises and regulatory changes. The S of social was also important, given the strong connection between credit institutions and local communities, and their role in today's society. Finally, the E of environment certainly has an impact, but a more limited one than the other two factors.
