Sustainability bond, sustainability-linked bond, and firms' environmental performance

The issuance of green bonds, which channel toward green projects, has surged in recent years. However, sustainability and sustainability-linked bonds, which have looser restrictions on the use of funds than green bonds, also allocate funds to support green initiatives. While research on these bonds is expanding, no study has examined whether the issuance of sustainability and sustainability-linked bonds leads to enhancements in environmental performance. To address this gap, our study investigates the relationship between the issuance of sustainability bonds and sustainability-linked bonds and corporate environmental performance using a difference-in-difference approach with an event study methodology. Our findings suggest that the issuance of sustainability and sustainability-linked bonds does not contribute to improving corporate environmental performance. Therefore, implementing strict regulations on the use of proceeds is crucial to ensure the effectiveness of these bonds. • Sustainability and sustainability-linked bonds' environmental effects are studied. • These bonds do not improve issuers' environmental performance, unlike green bonds. • The difference between these bonds and green bonds is the use of proceeds. • Clear specification of the use of proceeds is crucial.