Sustainable Corporate Bonds in the Swedish Real Estate Sector : A study on sustainable corporate bonds in the Swedish real estate sector with focus on risk premium and driving factors

Sammanfattning: The market for sustainable corporate bonds is booming and has been for the pastyears. Swedish real estate companies were first with issuing green corporate bonds andresponsible for the largest amount of issued corporate bonds. However, in the socialand sustainability corporate bond market, the sector is lagging. Why would companiesissue sustainable bonds instead of regular, as it involves more issuing costs and morerequirements? Are green bonds a less risky asset and why have not thesocial/sustainability corporate bond market boomed yet?A proven method is applied by a matching approach using Mahalanobis distance withfocus on green corporate bonds issued by Swedish real estate companies at NasdaqNordic’s sustainable debt list. We compare green and traditional bonds by mean andmedian using paired t-test and Wilcoxon test. Our results conclude that the premiumon green bonds amounts to an average of 13.0 basis points with a median value of 13.6basis points, both at the 1% significance level.Interviews are held with issuers, investors, banks, and rating institutes for a deeperunderstanding behind incentives and the sustainable bonds market. Most respondentsmean that a sustainable label is connected to a premium. Besides an economicincentive, most of the respondents mean that issuing sustainable bonds is a valuablesignaling element to show the market a company’s sustainable commitment.Respondents further say that social and sustainability bonds are lagging due to thelack of key performance indicators (KPIs), regulations, and that such engagementrequires too small investment volumes. With further regulations, the risk ofenvironmental, social, and governance (ESG) washing is minimized, and respondentsbelieve that greenwashing is particularly becoming rarer as the market is maturing.Finally, the respondents all believe in further growth in both green, social andsustainability bonds, but to varying degrees.Our results conclude that there are many incentives in adding the sustainability factorin the capital structure to reduce financial costs as well as improving (or maintaining)brand image. We hope our results can give further incentives to issue sustainable debtas well as bring a deeper understanding to the challenges slowing down thedevelopment of social and sustainability bonds.