Driving Sustainable Finance: The Role of Green Bonds and ESG Performance in European Corporate Finance

Abstract

This paper aims to examine if European corporations issue green bonds at lower yields compared to their conventional counterparts. Combining propensity score matching and regression analysis, this paper tests three different hypotheses. Using a sample of 4,920 European bonds issued by corporations between the years 2012 to 2022, we find that European corporate green bonds are issued at 25.8 bps lower yields compared to their conventional counterparts and companies with higher ESG scores have been able to issue green bonds at 35.0 bps lower yields on average compared to companies with lower ESG scores. Additionally, one unit increase in Environmental (E) or Governance (G) scores result in a 0.7 and 0.6 bps reduction in yield, respectively, on average. These results have practical implications for our Master thesis partner NOVO Energy but also European companies in terms of which financing to choose for sustainable projects and how to optimize their ESG strategy. Acknowledgement