ESG Rating and Corporate Bond Performance : An analysis of the effect of ESG rating on yield spread

Abstract: This research evaluates the relationship between ESG score of the firm and its effect on the performance of their bonds. The study looks at listed companies on the Nordic countries ’ stock exchanges and tries to establish a relationship between ESG score and corporate bond yield spread. The study finds that no such relationship can be established and therefore that a high ESG score does not imply a decreased level of required risk premium by bond investors and a decreased or stabilized cost of debt for companies in the Nordic countries. Further, the study will contribute to a theoretical discussion by using the Stakeholder Theory, Legitimacy Theory, The Resource-Based View and finally the Agency theory in order to further analyze the underlying dynamics of this proposed relationship.