ESG Strategist - Are investors pricing climate-related risks into bond markets?
In this piece, we investigate whether investors are considering climate-related risks when conducting their investment decisions and that accordingly, they reward issuers with less exposure to these risks
We use a wide set of climate-related indicators to assess whether these have an impact on bond spreads using a regression model
Our research indicates that there does not seem to be strong evidence that shows that climate risks are being efficiently priced into bond markets. That is both true for corporates and financials
We argue that this is likely the case due to the lack of coherence across different providers of ESG indicators
However, our analysis does show that exclusions seem to have a negative impact on spreads
More specifically, investors penalize issuers that have a Sustainalytics controversy score of 4 or 5
In the corporate space, we did not find evidence that exclusions solely due to climate lead to meaningful impact on bond spreads…
…but this could be due to the fact that not so many investors exclude yet solely on the basis of climate considerations
Full report: