The value effect of sustainability: evidence from Latin American ESG bond market

Figures & data

Figure 1. Latin American corporate ESG bond issuances in international markets. Source: Núñez, Velloso, and Da Silva (2022).

Table 1. Types of ESG bonds.

Type of instrument	Description
Green bond	The proceeds are used toward projects and activities promoting a wide range of environmental targets.
	This category includes instruments such as climate, blue, and transition bonds.
Social bond	The proceeds are used to finance projects addressing or mitigating specific social issues to achieve a positive social impact.
	This category includes instruments such as COVID-response bonds and affordable-housing bonds.
Sustainability bond	Combines social and environmental targets.
Sustainability-linked bond	The coupon of the bond is tied to the achievement of sustainable targets.

Source: MSCI (2021).

Table 2. Sample description.

Panel A. ESG bond issuances in selected countries
Total issuances	429
Issuances of listed firms	145
Sample issuances	115
First-time issuers	54

Panel B. ESG bond listed issuers per country
Country of issue	Number of issuers	Percentage
Argentina	5	7.46%
Brazil	35	52.24%
Chile	10	14.93%
Colombia	7	10.45%
Mexico	9	13.43%
Peru	1	1.49%
Total	67	100.00%

Panel C. Corporate ESG bonds by country and year
Country	2016	2017	2018	2019	2020	2021	2022	Subtotal
Argentina	0	0	0	0	1	1	3	5
Brazil	1	1	1	9	20	24	4	60
Chile	0	0	1	9	0	6	3	19
Colombia	1	1	4	1	4	6	0	17
Mexico	0	2	0	0	3	4	4	13
Peru	0	0	0	0	0	0	1	1
Subtotal	2	4	6	19	28	41	15	115

Panel D. Corporate ESG bond issuances in Latin America by type of bond.
Type of ESG bond	2016	2017	2018	2019	2020	2021	2022	Subtotal
1. Green	2	4	6	17	24	35	15	103
2. Social	0	0	0	1	2	3	0	6
3. Sustainability	0	0	0	1	2	0	0	3
4. Sustainability-linked	0	0	0	0	0	3	0	3
Subtotal	2	4	6	19	28	41	15	115

Table 3. Variable description.

Variable	Description
CAR	Cumulative Abnormal Return
CAAR	Cumulative Average Abnormal Return
Board size	Number of directors on the Board
Board size deviation from the mean	The difference between the Board size and the average board size of the sample
Board Independence	Number of independent directors on the Board / Board size
Board Diversity	Number of female directors on the Board / Board size
CEO Duality	1 if CEO is President of the Board; 0 Otherwise
Rating	Bond rating. 10 if the bond is rated as AAA
Size	Natural logarithm of firm assets
Growth	Average percentage of assets growth / 100
Leverage	Debt / Assets
Largest Shareholder’s Equity Stake	Percentage of shares owned by largest shareholder / 100
ESG	ESG Score by Refinitiv
Private	1 if firm is controlled by private owners; 0 Otherwise
Financial	1 if firm is part of financial sector; 0 Otherwise
Energy	1 if firm is part of energy sector; 0 Otherwise
Industry	1 if firm is part of an industry; 0 Otherwise
Services	1 if firm is part of services; 0 Otherwise

Table 4. Descriptive statistics.

Variable	Obs	Mean	Std. Dev.	Min	Max
Dependent variable
Cumulative abnormal return (CAR)	115	0.0197	0.1019	−0.1911	0.5871
Cumulative Average Abnormal Return (CAAR)	115	0.0111	0.0554	−0.0945	0.2814
Independent variables
Board size	115	9.0435	2.9747	5	20
Board size deviation from the mean	115	0.0435	2.9747	−4	11
Board Independence	115	0.4337	0.2159	0	1
Board Diversity	115	0.1862	0.1107	0	0.4285
CEO Duality	115	0.0434	0.2048	0	1
Rating	115	8.0086	1.7696	4	10
Size	115	15.8899	1.5232	12.5718	19.6915
Growth	115	0.0493	0.1762	−0.2378	0.8664
Leverage	115	0.6686	0.1892	0.1278	0.9437
Largest Shareholder’s Equity Stake	115	0.4126	0.1758	0.0523	0.8770
ESG	115	60.0455	14.7175	16.8100	89.8200
Private	115	0.9130	0.2830	0	1
Financial	115	0.2435	0.4310	0	1
Energy	115	0.2261	0.4201	0	1
Industry	115	0.3391	0.4755	0	1
Services	115	0.1913	0.3950	0	1

Table 5. Cumulative Abnormal Return (CAR) regressions for [−9, 9] window.

Days before and after issuance	CAR	Std. Err.	t	P > | t |
−9	0.0004	0.0014	0.29	0.7720
−8	0.0028	0.0023	1.24	0.2190
−7	0.0043	0.0035	1.23	0.2210
−6	0.0048	0.0038	1.26	0.2090
−5	0.0057	0.0040	1.43	0.1540
−4	0.0055	0.0039	1.40	0.1630
−3	0.0079	0.0038	2.10	0.0380
−2	0.0109	0.0056	1.95	0.0540
−1	0.0137	0.0068	2.02	0.0460
0	0.0170	0.0103	1.65	0.1020
1	0.0160	0.0089	1.80	0.0750
2	0.0155	0.0073	2.13	0.0350
3	0.0141	0.0072	1.95	0.0540
4	0.0157	0.0073	2.13	0.0350
5	0.0142	0.0078	1.83	0.0700
6	0.0120	0.0079	1.52	0.1310
7	0.0121	0.0082	1.49	0.1400
8	0.0176	0.0089	1.99	0.0490
9	0.0197	0.0095	2.08	0.0400

Table 6. Cumulative Abnormal Return (CAR) regressions for [−9, 9] window. First-time issuers.

Days before and after issuance	CAR	Std. Err.	t	P > | t |
−9	−0.0018	0.0019	−0.93	0.3560
−8	0.0014	0.0035	0.42	0.6760
−7	0.0061	0.0058	1.04	0.3020
−6	0.0079	0.0064	1.23	0.2240
−5	0.0121	0.0063	1.93	0.0590
−4	0.0105	0.0057	1.82	0.0750
−3	0.0108	0.0054	1.97	0.0540
−2	0.0107	0.0060	1.79	0.0800
−1	0.0133	0.0060	2.21	0.0310
0	0.0135	0.0064	2.10	0.0400
1	0.0151	0.0066	2.26	0.0280
2	0.0156	0.0069	2.26	0.0280
3	0.0125	0.0072	1.74	0.0880
4	0.0174	0.0081	2.16	0.0360
5	0.0153	0.0084	1.82	0.0750
6	0.0162	0.0086	1.87	0.0670
7	0.0162	0.0088	1.85	0.0700
8	0.0199	0.0088	2.24	0.0290
9	0.0227	0.0097	2.34	0.0230

Table 7. Impact of firm characteristics on Cumulative Abnormal Return (CAR).

Variable	(1)	(2)	(3)	(4)	(5)	(6)
	CAAR	CAR	CAR	CAR	CAR	CAR
Board size deviation from the mean	−0.0050	−0.0060*	−0.0070*	−0.0070*	−0.0140***	−0.0150***
	(0.0040)	(0.0040)	(0.0040)	(0.0040)	(0.0040)	(0.0050)
Board size deviation from the mean^2	0.0010**	0.0020**	0.0020**	0.0020***	0.0030***	0.003***
	(0.0010)	(0.0010)	(0.0010)	(0.0010)	(0.0010)	(0.0010)
Board independence	−0.0160	−0.0140	−0.0110	−0.0100	−0.0220	−0.0340
	(0.0410)	(0.0410)	(0.0410)	(0.0390)	(0.0380)	(0.0480)
Board diversity	0.3620***	0.3490***	0.3480***	0.3840***	0.3370***	0.3310***
	(0.0840)	(0.0830)	(0.0850)	(0.0810)	(0.0790)	(0.0810)
CEO duality	−0.0050	−0.0110	−0.0080	−0.0050	0.0300	0.0450
	(0.0440)	(0.0440)	(0.0440)	(0.0420)	(0.0410)	(0.0440)
Rating		−0.0080	−0.0080	−0.0060	−0.0070	−0.0060
		(0.0050)	(0.0050)	(0.0050)	(0.0050)	(0.0060)
Size			−0.0050	−0.0140**	−0.0100*	−0.0120
			(0.0060)	(0.0060)	(0.0060)	(0.0090)
Growth			−0.0380	−0.0730	−0.0750	−0.0850
			(0.0540)	(0.0520)	(0.0500)	(0.0540)
Leverage				0.1770***	0.1580***	0.2000***
				(0.0500)	(0.0480)	(0.0600)
Largest Shareholder’s Equity Stake					−0.1900***	−0.2270***
					(0.0570)	(0.0600)
ESG score						−0.0010
						(0.0010)
Constant	−0.0520*	0.0150	0.0940	0.0870	0.1410	0.4410**
	(0.0280)	(0.0490)	(0.1040)	(0.0980)	(0.0950)	(0.1790)
Observations	115	115	115	115	115	115
R-squared	0.1990	0.2180	0.2280	0.3110	0.3790	0.4800
Industrial sector dummies	No	No	No	No	No	Yes
Controlling shareholder identity dummies	No	No	No	No	No	Yes
Number of firms	67	67	67	67	67	67

Standard errors in parentheses.

*** p < 0.01, ** p < 0.05, * p < 0.1.

Table 8. CAR for announcement dates and CAAR for issuance dates.

Variable	Coefficient	Std. Err.	t	P>|t|
CAR (AD)	0.0265	0.0129	2.05	0.0440
CAAR (issuance date)	0.0111	0.0052	2.15	0.0330
CAAR (issuance date – first time issuers)	0.0113	0.0056	2.01	0.0500

Table 9. Impact of firm characteristics on CAR for announcement dates and CAAR for issuance dates.

Variable	(1)	(2)
	CAR (AD)	CAAR
Board size deviation from the mean	−0.0160**	−0.0040**
	(0.0070)	(0.0030)
Board size deviation from the mean^2	0.0030***	0.0010**
	(0.0010)	(0.0000)
Board independence	−0.0430	−0.0080
	(0.0610)	(0.0230)
Board diversity	0.3360***	0.1600***
	(0.1050)	(0.0490)
CEO duality	0.0270	0.0120
	(0.0570)	(0.0260)
Rating	−0.0100	−0.0050
	(0.0080)	(0.0030)
Size	−0.0210*	−0.0010
	(0.0120)	(0.0060)
Growth	−0.0410	−0.0050
	(0.0690)	(0.0320)
Leverage	0.1990***	0.0820***
	(0.0730)	(0.0300)
Largest Shareholder’s Equity Stake	−0.2260***	−0.0880**
	(0.0730)	(0.0340)
ESG score	−0.0000	−0.0010*
	(0.0010)	(0.0000)
Constant	0.4760**	0.0620
	(0.1790)	(0.0900)
Observations	75	115
R-squared	0.5900	0.3160
Industrial sector dummies	Yes	Yes
Controlling shareholder identity dummies	Yes	Yes
Number of firms	67	67

Standard errors in parentheses.

*** p < 0.01, ** p < 0.05, * p < 0.1.

Table 10. Propensity Score Matching (PSM) to test the validity of the results in Table 7, regarding the effect of Board Diversity on AR, CAR, and CAAR.

Variable	Treated (Women on the Board)	Controls	Difference	S.E.	T stat
AR	0.0149	−0.0002	0.0151	0.0062	2.42**
CAR	0.1211	0.0009	0.1202	0.0237	5.07***
CAAR	0.0564	0.0027	0.0537	0.0133	4.02***

Núñez, G., H. Velloso, and F. Da Silva. 2022. Corporate governance in Latin America and the Caribbean: Using ESG debt instruments to finance sustainable investment projects. In Project Documents.

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