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Mirror, mirror on the wall, who is transitioning amongst them all?

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  • Hinsche, Isabelle Cathérine
  • Klump, Rainer

Abstract

In order to reach climate neutrality by 2050, the European Union is taking action in the form of extensive sustainability regulations with the aim to push the private sector towards sustainable economic activities. In this context, a new instrument to finance a company's sustainability transition has been developed: the sustainability-linked bond (SLB). This paper analyzes the SLB market's efficiency in attracting those companies that are most crucial for a successful sustainability transition, namely carbon-intensive companies and companies that are lagging behind in their sustainability transition, defined as ESG laggards. By developing a conceptual framework for the SLB market and running a probit and logit regression estimation, this paper shows that the SLB market efficiently attracts carbon-intensive companies, but fails to attract ESG laggards. Moreover, the paper identifies four success factors for the SLB market to improve its future accessibility and credibility.

Suggested Citation

  • Hinsche, Isabelle Cathérine & Klump, Rainer, 2023. "Mirror, mirror on the wall, who is transitioning amongst them all?," CFS Working Paper Series 712, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:712
    DOI: 10.2139/ssrn.4464312
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    References listed on IDEAS

    as
    1. Marcin Liberadzki & Piotr Jaworski & Kamil Liberadzki, 2021. "Spread Analysis of the Sustainability-Linked Bonds Tied to an Issuer’s Greenhouse Gases Emissions Reduction Target," Energies, MDPI, vol. 14(23), pages 1-12, November.
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    5. Olivier David Zerbib, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Post-Print halshs-02008641, HAL.
    6. Zerbib, Olivier David, 2019. "The effect of pro-environmental preferences on bond prices: Evidence from green bonds," Journal of Banking & Finance, Elsevier, vol. 98(C), pages 39-60.
    7. Sean Chiao & Nancy F. Lin, 2021. "Sustainable Buildings and Practice in China," Management for Professionals, in: Bing Wang & Tobias Just (ed.), Understanding China’s Real Estate Markets, edition 2, pages 243-266, Springer.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Sustainable Finance; Sustainability-Linked Bonds; Transition Financing; Sustainable Investing; ESG; Market Efficiency;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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