Finsif tukee vuosittain vastuullisen sijoittamisen tutkimusta stipendein
Finsif jakaa stipendejä vastuullisesta sijoittamisesta kiinnostuneille opiskelijoille ja tutkijoille. Stipendien jaon tarkoituksena on edistää vastuullisen sijoittamisen tutkimustyötä. Stipendejä jaetaan vuosittain enintään 8000 euron summalla. Vuoden 2025 stipendihaku alkaa keväällä. Lisätietoa
The Financial Sector’s Role in Driving Climate Action
The financial sector can play a crucial role in addressing environmental challenges by directing capital toward investments aligned with global climate goals. Sustainability-linked bonds (SLBs), introduced in 2019, offer a flexible alternative to use-of-proceeds bonds by tying financing to sustainability performance targets (SPTs). Firms face penalties, such as higher coupon payments, if these targets are not met, encouraging them to meet their targets.
Filling the Research Gap: How SLBs Are Perceived by Investors
Studies published prior to my thesis primarily examined whether SLBs are priced differently from conventional bonds, leaving a significant gap in understanding how SLBs are perceived by industry participants and their alignment with shareholder perceptions. My thesis explored whether investors view SLB issuances as credible signals of future sustainability improvements—reflected in stock price reactions—and examined the extent to which SLB issuers commit to broader ESG improvements after issuance.
A Disconnect between Stock Price Reactions and Issuer Motivations
Contrary to the robust positive reactions found in previous research on green bonds, the findings revealed positive but statistically insignificant abnormal returns in a sample of 318 SLB issuances by public firms globally. Sub-sample analyses indicate that the context—such as being a first-time issuer or operating in less scrutinized sectors—increases positive abnormal returns.
In addition to analysing stock price reactions following SLB issuances, my thesis investigated changes in firms’ sustainability performance and institutional ownership of their stocks after issuance.
Contrary to expectations, SLB issuances did not lead to significant increases in institutional ownership, contrasting with findings for green bonds. This implies that the sustainability signal may not be material enough to attract substantial interest from institutional investors.
The results also highlighted a concerning trend in ESG performance, as SLB issuers significantly decreased their overall sustainability performance compared to a matched sample of conventional bond issuers. However, SLB issuers seem to focus on meeting the targets set in their SLBs, as emission intensity was reduced. This finding raises questions about the efficacy of SLBs in driving genuine progress, as issuers may still engage in economic activities with harmful environmental and social impacts.
SLBs—A Step Forward or Just Greenwashing?
In conclusion, while SLBs are generally met with positive stock market reactions, the lack of significant abnormal returns suggests a more nuanced dynamic compared to green bonds. The evidence of declining sustainability performance following issuances raises concerns about the incentives behind SLB issuance. Although the market reaction to SLB issuances was insignificant, it was, on average, positive, highlighting a gap in how shareholders perceive the sustainability signal and the intentions behind the issuance.
These findings contribute to the limited literature on SLBs and provide valuable insights into their market dynamics, issuer motivations, and investor perceptions. As SLBs grow in popularity, more research, regulation, and standardization are required to ensure they fulfil their promise as a tool for combating climate change rather than merely serving as a mechanism for greenwashing.
Wilson Tukiainen
M.Sc Finance, Aalto University, 2024
The study can be found here.
