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Sustainability-linked bonds, corporate commitment and the cost of debt

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  • Mariani, Massimo
  • D’Ercole, Francesco
  • Frascati, Domenico
  • Fraccalvieri, Giuseppe

Abstract

Sustainability-linked bonds represent one of the newest weapons of choice for firms raising money to reach their sustainability targets. On a sample of 252 corporate sustainability-linked bonds, we employ cross-sectional regressions to inspect the impact of a combination of factors on the cost of debt financing for the issuer, proxied by the yield at issuance. The results unveil that firms with higher step-up clauses in their sustainability-linked bonds do not benefit from reduced debt costs. In contrast, firms exhibit a lower cost of debt when the coupon step-up-related cash flows are paid for a longer period in case of corporate sustainability target failure. On a different note, market actors critically eye the ambitiousness of the targets, with companies experiencing higher yields at issuance when issuing sustainability-linked bonds with outdated sustainability benchmarks and easy-to-reach targets. This study is among the first to underscore the importance of the interplay between financial and qualitative factors in properly designing sustainability-linked bonds with financially material, ambitious, and time-sensitive sustainability targets to reduce the cost of debt financing.

Suggested Citation

  • Mariani, Massimo & D’Ercole, Francesco & Frascati, Domenico & Fraccalvieri, Giuseppe, 2025. "Sustainability-linked bonds, corporate commitment and the cost of debt," Research in International Business and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:riibaf:v:74:y:2025:i:c:s0275531924004513
    DOI: 10.1016/j.ribaf.2024.102658
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    References listed on IDEAS

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    More about this item

    Keywords

    Sustainability-linked bonds; Yield at issuance; Step-up penalty; Sustainability performance target;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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