ESG criteria and the credit risk of corporate bond portfolios

Arbeitspapier

Demand for sustainable fixed-income investment solutions is surging but there is hardly research on the impact of sustainability on the risk characteristics of fixed-income portfolios. This study examines the impact of sustainability on the credit risk exposure of U.S. corporate bond portfolios between 2013 and 2020 by analyzing the returns of sustainable and non-sustainable portfolios using two different asset pricing models and environmental, social, and governance (ESG) ratings from different providers. Controlling for a set of portfolio characteristics, our results show that sustainable portfolios are significantly less exposed to credit risk than their non-sustainable peer portfolios. This finding implies that considering ESG criteria in portfolio management is a suitable means to systematically manage credit risk. Being the first study to investigate the relationship between sustainability and credit risk on portfolio level, this study contributes to the understanding of the effects of ESG criteria in portfolio management and provides academics and investment professionals with valuable insights.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 23-03

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
• Subject: Sustainability ; Credit risk management ; Corporate bonds

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Höck, André ; Bauckloh, Michael Tobias ; Dumrose, Maurice ; Klein, Christian
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/274034
• Last update: 10.03.2025, 11:44 AM CET