The impact of ESG rankings on credit spreads of corporate bonds in Russia

Alexander  Abramov; Maria Chernova; Anna Shcherbak

doi:10.17323/j.jcfr.2073-0438.18.3.2024.38-48

Alexander Abramov Russian Academy of National Economy and Public Administration, Moscow, Russia https://orcid.org/0000-0003-4285-9115
Maria Chernova Russian Academy of National Economy and Public Administration, Moscow, Russia https://orcid.org/0000-0003-0144-1820
Anna Shcherbak Russian Academy of National Economy and Public Administration, Moscow, Russia https://orcid.org/0000-0001-9702-1307

DOI: https://doi.org/10.17323/j.jcfr.2073-0438.18.3.2024.38-48

Keywords: ESG ranking, credit spreads, bonds, sustainable development, environmental performance, social performance, management component

Abstract

The article discusses the impact of corporate ESG activity on the cost of bond issues in the context of the growing interest in sustainable development in Russia. Using panel data models and the ESG rankings of the RAEX rating agency, we demonstrate the significant impact of sustainable performance indicators on credit yield spreads using a sample of 2,646 corporate bond issues of 328 manufacturing companies and 76 financial organizations between the second half of 2019 and the end of 2023. We employ unique data on the dynamics of ESG rankings for each of the components (E - environmental, S - social and G - governance) across a wide range of companies. The explanatory variables include characteristics of bonds and issuers as well as macroeconomic indicators. We show that companies moving up in the ESG ranking in both sectors of the economy reduce their cost of bond issues. ESG components have a uniform impact for manufacturing companies yet show a varying influence for financial organizations. High environmental and social indicators increase a required bond yield, while a high governance component reduces it. Investors value information transparency in both sectors. Real-sector companies place greater importance on environmental and social responsibility, despite the associated costs, while the financial sector often views it as unnecessary. Sustainable bonds enable the Russian economy to adopt the ESG agenda faster. Our findings assist bond issuers in calculating risk premiums more realistically and allow corporate bond investors to consider sustainable development when making investment decisions.

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