Do Conventional Bonds Respond More Strongly to ESG Information than Green Bonds? Evidence from China

Abstract

Abstract

This study examines the relationship between Environmental, Social, and Governance (ESG) performance and financing and pricing outcomes in green and conventional bond markets in China over the period of 2017–2024. Drawing on signaling theory, information asymmetry theory, and market segmentation theory, the study argues that the role of ESG performance differs across bond types because green and conventional bonds operate within different institutional and informational environments. Using a comparative analysis of green and conventional bonds, the findings show that ESG performance is more strongly and consistently associated with conventional bond characteristics, particularly in relation to issuance amount, yield to maturity, and credit spreads. In contrast, ESG effects in green bonds are weaker and less consistent, suggesting that investors place greater emphasis on certification mechanisms, environmental project objectives, and sustainability-related bond characteristics than on broader issuer-level ESG disclosures. The findings also suggest that ESG information does not affect all debt instruments in the same way or always functions as a purely risk-reducing signal. In the Chinese market, stronger ESG exposure may also be associated with transition risks, regulatory pressures, and sector-specific sustainability challenges, particularly in conventional bond markets. Overall, the results indicate that the financial relevance of ESG performance depends not only on firm characteristics but also on the institutional and informational environment of the financial instrument itself. The findings remain robust across alternative model specifications and sensitivity analyses, providing additional confidence in the reported differences between green and conventional bond markets. The study contributes to the sustainable finance literature by showing that the pricing relevance of ESG information is instrument-specific rather than uniform across debt markets. It also provides practical implications for regulators, investors, and issuers by highlighting the importance of disclosure quality, transparency standards, and external verification mechanisms in strengthening investor confidence and reducing potential greenwashing risks in sustainable finance markets.