This research from the Kedge/Candriam Finance Reconsidered research chair takes a new approach to objectively defining ESG factors. This allows the effect of climate change on bond prices to be more rigorously examined.
As part of the Candriam and Kedge Business School research into sustainable finance, Kedge has published its new study of Climate Sensitivity in Euro Corporate Bonds, 'No News is Good News'. Is there a relationship between climate change and bond returns?
ESG scores are extra-financial, and often externally sourced. Their definition lacks consensus. As a result, academic studies have been unable to reach a consensus on ESG and securities prices.
The complexity of fixed income securities markets – multiple issues for each corporate, differing coupons, different maturities – just increases the challenge when it comes to bonds.
Kedge eliminated the controversy over a consistent definition of ESG by employing climate news. For example, the level of news articles on climate rises around events such as climate conferences. One assumes that these news events represent increased regulatory and transition risks. Kedge's work demonstrates that increased climate risk reduces fixed income returns.
So, No (climate) News, is Good News!