Sustainability-Linked Debt in Shipping : A study on the effects of SLD on shipowners’ cost of capital

Abstract

This study analyzes whether issuing sustainability-linked debt (SLD) reduces shipowners’ cost of capital. In light of the existing research on green bonds indicating increased investor appetite for sustainability, along with pressure from the IMO towards zero emission, it is interesting to investigate whether this new addition in the sustainable finance landscape can play a role towards a more sustainable shipping industry. We analyze the cost of capital with a dual-lens approach, investigating the impact on the cost of debt and equity separately. By conducting a difference in differences analysis of the effect of bond and loan issuances on the cost of equity within one year after issuance, we find that shipowners generally achieve a slight but significant reduction in the cost of equity. However, the effect is heterogeneous among individual shipowners in direction, size, response time, and development over time. We do not find a trend of specific shipping segments standing out in a particular direction. On the debt side, we match sustainability-linked bonds with conventional counterfactuals to investigate the presence of a “greenium”. We conclude that inferring an effect on the cost of debt is challenging as the current number of SLBs is too limited. Investigating an effect on the cost of debt from the SLLs is also difficult due to a lack of transparency in the loan data. Nevertheless, our results provide a basis for rejecting the null hypothesis, which states that SLD does not affect shipowners’ cost of capital. In conclusion, SLD seems to reduce the cost of capital for shipowners through positive reactions from investors about the commitment towards sustainability, consistent with existing research on green financing.