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ESG criteria and the credit risk of corporate bond portfolios

Author

Listed:
  • Andre Höck

    (University of Kassel’s Chair of Sustainable Finance)

  • Tobias Bauckloh

    (University of Cologne and Centre for Financial Research Cologne)

  • Maurice Dumrose

    (University of Kassel’s Chair of Sustainable Finance)

  • Christian Klein

    (University of Kassel’s Chair of Sustainable Finance)

Abstract

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 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 a 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.

Suggested Citation

  • Andre Höck & Tobias Bauckloh & Maurice Dumrose & Christian Klein, 2023. "ESG criteria and the credit risk of corporate bond portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 24(7), pages 572-580, December.
    • Handle: RePEc:pal:assmgt:v:24:y:2023:i:7:d:10.1057_s41260-023-00337-w
    DOI: 10.1057/s41260-023-00337-w
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    References listed on IDEAS

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    More about this item

    Keywords

    Sustainability; Credit Risk Management; Corporate Bonds;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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