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Bank's funding costs: Do ESG factors really matter?

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  • Agnese, Paolo
  • Giacomini, Emanuela

Abstract

This study analyzes whether environmental, social and governance (ESG) factors affect the pricing of bank bonds in the primary market. Using a unique dataset of 19,106 fixed-rate senior bonds issued by a sample of 63 EU banks between 2006 and 2021, we find that, ceteris paribus, the cost at issuance is lower for banks with higher ESG scores. Interestingly, the results are not driven by the environmental friendliness of the issuer, but rather by high corporate governance standards and ESG reporting and transparency practices. Our results shed light on the effect of ESG practices on the cost of debt funding in the banking sector, and show a positive role of “sustainable” banking governance practices in reducing the cost of debt financing.

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  • Agnese, Paolo & Giacomini, Emanuela, 2023. "Bank's funding costs: Do ESG factors really matter?," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006146
    DOI: 10.1016/j.frl.2022.103437
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    Cited by:

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    2. Andrieș, Alin Marius & Sprincean, Nicu, 2023. "ESG performance and banks’ funding costs," Finance Research Letters, Elsevier, vol. 54(C).
    3. Cantero-Saiz, María & Polizzi, Salvatore & Scannella, Enzo, 2024. "ESG and asset quality in the banking industry: The moderating role of financial performance," Research in International Business and Finance, Elsevier, vol. 69(C).
    4. Yang, Dan & Zhao, Zhiyong & Wang, Liangliang, 2024. "Is ESG reporting informative to debtholders?— Evidence from a quasi-experiment in China," Finance Research Letters, Elsevier, vol. 62(PA).
    5. Arnone, Massimo & Leogrande, Angelo, 2024. "The Sustainability of the Factoring Chain in Europe in the Light of the Integration of ESG Factors," MPRA Paper 121342, University Library of Munich, Germany.
    6. Cao, Qiang & Zhu, Tingting & Yu, Wenmei, 2024. "ESG investment and bank efficiency: Evidence from China," Energy Economics, Elsevier, vol. 133(C).
    7. Rahat, Birjees & Nguyen, Pascal, 2023. "Does ESG performance impact credit portfolios? Evidence from lending to mineral resource firms in emerging markets," Resources Policy, Elsevier, vol. 85(PB).
    8. Jin Wang & Zihan Hong & Hai Long, 2023. "Digital Transformation Empowers ESG Performance in the Manufacturing Industry: From ESG to DESG," SAGE Open, , vol. 13(4), pages 21582440231, October.
    9. Jiahui Su & Yidi Sun, 2023. "An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises," Sustainability, MDPI, vol. 15(13), pages 1-20, June.

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    More about this item

    Keywords

    ESG; Bank bonds; Cost of funding; Governance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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