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Sustainability pays off. Indeed, it allows you to pay less, if we talk about banks and their financing costs. For credit institutions, a single increase in the ESG score by agencies such as MSCI can generate a decrease in the bond spread of up to -11.52 percent.
The evidence comes from the report “Do ESG ratings matter for banks’ cost of funding? An empirical investigation”of the Bank of Italy. The analysis, by Stefano Nobili, Mattia Persico and Rosario Romeo, examines two categories of data. On the one hand, the bonds issued by over 130 banks in the euro area, located in 13 different countries, including Italy. On the other hand, the ESG ratings attributed to credit institutions by three large specialized agencies: MSCI, Refinitiv Eikon and Morningstar. All over a long period of time, from 2015 to 2022.
He reports
The data highlighted by the study are expressed in technical terms, but the summary of the results is decidedly clear: in the medium-long term, the more virtuous banks, which manage to improve their ESG rating, also become more attractive for investors. And therefore the cost of their debt falls, whether it is bonds sold on the primary market or the spread of securities already in circulation.
The Bank of Italy study shows that an improvement in ratings has a much stronger impact than a worsening of them. «The effects of downgrades and upgrades are not symmetrical – comment the authors of the study -. A bank’s cost of debt is more persistently sensitive to increases in ESG scores, rather than decreases.” In other words, investors are more ready and decisive in rewarding virtuous banks, rather than punishing those with deteriorating sustainability policies.
Who weighs more: E, S or G?
Another outcome of the investigation emerges by isolating the impact of ESG factors. Among the three, the most relevant for banks is G: credit institutions that are more attentive to governance face fewer risks of legal disputesand are overall better managed even in the face of the prospect of crises and regulatory changes. The S of social is also important, given the strong connection between credit institutions and local communities, and their role in today’s society. Finally, the E for environment certainly has an impact, but it is more limited than the other two factors.
