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ESG criteria and the credit risk of corporate bond portfolios

Höck, André
Bauckloh, Tobias
Dumrose, Maurice
Klein, Christian

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.

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Gefördert im Rahmen des Projekts DEAL
Citation
In: Journal of Asset Management Volume 24 / Issue 7 (2023-10-25) , S. 572-580; eissn:1479-179X
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Namensnennung 4.0 International
Except where otherwised noted, this item's license is described as Namensnennung 4.0 International
@article{doi:10.17170/kobra-202312069175,
  author    ={Höck, André and Bauckloh, Tobias and Dumrose, Maurice and Klein, Christian},
  title    ={ESG criteria and the credit risk of corporate bond portfolios},
  keywords ={330 and Nachhaltigkeit and Environmental, Social and Governance and Kreditrisiko and Risikomanagement and Industrieobligation},
  copyright  ={http://creativecommons.org/licenses/by/4.0/},
  language ={en},
  journal  ={Journal of Asset Management},
  year   ={2023-10-25}
}