BERG Florian

This thesis aims to analyze whether environmental, social and governance (ESG) performance is integrated by corporate and sovereign debt markets. The first chapter focuses on ESG information published with negative content and its negative impact on the cost of debt. Specifically, in the industrial and utility sectors, negative social and governance events increase the cost of debt. Also, a good general level of ESG performance acts as an insurance mechanism against these negative events. In a second chapter, the results of a portfolio simulation integrating corporate ESG performance will be presented. A portfolio manager can improve the aggregate level of ESG performance of the portfolio by 1.5 standard deviations without decreasing the financial performance. Thus, the manager can combine this integration with financial asset allocation strategies or absolute return strategies. In a third chapter, I analyze the results on the reduction of the cost of debt due to a good environmental and social performance of emerging sovereigns. Finally, in the fourth chapter I describe how the governance performance of sovereigns influences the difference between the yield issued in foreign currency and that issued in local currency. In developed countries this difference increases with political risk, i.e. foreign yield increases faster than domestic yield. In emerging countries, the opposite effect is observed. This difference between the two yields varies more strongly with an increasing proportion of domestic debt held by foreign investors.

We measure the impact of negative environmental, social and governance news on corporate bond prices and credit default swap premiums for the Eurozone market. Each firm is affected at least by one piece of news related to its environmental, social and governance practices. Each news is then flagged with an indicator of importance. Ab- normal bond returns are computed by subtracting return from a matching portfolio to the return of the observed bond return. Abnormal credit default swap return is calculated with a regression of the observed bond return on an equiweighted index that is constructed to transpose our bond universe on the credit default swap market. Several parametric and non parametric tests do not show any significant impact of these negative events as a whole on corporate bond prices, even though there is evidence of some impact of two subcategories of social events. When considering all events, we find a slight but counter-intuitive decrease of the credit default swap premium within the 5 following days of the event. REMARK: We did finish the database and have now more than 2000 events associated to 212 firms. Unfortunately, the calculation of the matching portfolios takes more time than we expected due to the various constraints. However, we joined the first results for the credit default swap market (Table 7). It does not change the results we found with our subsample of 85 firms.

We measure the impact of negative environmental, social and governance news on corporate bond prices and credit default swap premiums for the Eurozone market. Each firm is affected at least by one piece of news related to its environmental, social and governance practices. Each news is then flagged with an indicator of importance. Ab- normal bond returns are computed by subtracting return from a matching portfolio to the return of the observed bond return. Abnormal credit default swap return is calculated with a regression of the observed bond return on an equiweighted index that is constructed to transpose our bond universe on the credit default swap market. Several parametric and non parametric tests do not show any significant impact of these negative events as a whole on corporate bond prices, even though there is evidence of some impact of two subcategories of social events. When considering all events, we find a slight but counter-intuitive decrease of the credit default swap premium within the 5 following days of the event. REMARK: We did finish the database and have now more than 2000 events associated to 212 firms. Unfortunately, the calculation of the matching portfolios takes more time than we expected due to the various constraints. However, we joined the first results for the credit default swap market (Table 7). It does not change the results we found with our subsample of 85 firms.