Research On The Impact Of ESG Performance On Bond Spread And Green Premiums In Chinese Bond Market

Climate problem has become a common problem for humanity.In order to achieve the goal of ’30-60’ plan before 2060,a green-economy system is needed.Green financial system was proposed to be set up in order to provide lower financing costs for companies that develope green industries.To study whether "green bonds",an emerging bond category,can reduce corporate financing costs and receive signals of corporate "green" performance,this paper studied the impact of corporate ESG performance on bond spreads and green bond premiums.The Green Bond Premium is the portion of risk compensation that investors are willing to give up automatically for the green nature of a bond.In the bond market,green bond premium is expressed as a fraction of the lower bond spread on a green bond compared to a matching regular bond without green properties.Since bond yields represent the financing costs that companies must pay to use funds,the existence of green bond premiums can clearly demonstrate the role of green bonds in reducing corporate financing costs.At the same time,studying the relationship between ESG ratings and bond spreads and green bond premiums would do help to discover that whether higher ESG ratings will make green bonds show more financing advantages.This paper uses the secondary market transaction data from 2016 to 2021,and obtained 100 pairs of bonds by matching and processing to obtain the green bond premium.The two-way fixed-effect model and the multi-time DID model are used for research and robustness testing.The results show that(1)green bonds show a significant bond spread of about-4bps compared with ordinary bond yields,and the gap is more obvious in corporate bonds,about-12bps;(2)The higher ESG rating showed,the lower the bond spread be and the higher green bond premium be;(3)No matter whether the ESG rating rises or falls,the impact of ESG rating on the green bond premium is not significant,but when the ESG rating rises,the bond interest rate increases obviously.The difference will drop significantly,and the drop will be most pronounced within 1-2 months of this change.The research proves the real existence of green bond premium in our country’s bond market,indicating that green bonds have indeed played a role in reducing corporate financing costs.In addition,this paper explores the impact of ESG ratings on bond spreads and green bond premiums,and finds that ESG ratings can play a signaling role in the bond market to reduce bond spreads.The financing cost advantage of bonds over ordinary bonds may instead be diminished.This suggests that investors will not deliberately prefer bonds issued by issuers with high ESG ratings when they choose to forgo some risk compensation for the green nature.Instead,this green investment preference will only be reflected in bond spreads across all bonds issued by issuers with high ESG ratings.This indiscriminate selection in high ESG ratings has led to an increase in the green bond premium of high ESG rated issuers,reducing the relative financing advantages of green bonds of high ESG rated issuers.This research in this paper enables us to better understand the development of green bonds and ESG ratings in our country,and discovers new characteristics of investors’investment "green preference".Hope formulate green financial policies to promote the better and faster realization of our country’s carbon peak carbon neutral plan.