The sustainability premium of Italian bonds

L. Alessi, M. Gentile

Quaderno finanza sostenibile (paper) no. 7 - May 2026 [PDF]
 

Abstract
The study examines whether Italian sustainable bonds carry a distinct risk premium, aiming to understand whether investors incorporate the environmental, social and governance (ESG) profile of these instruments into market valuations. The analysis is based on issuance yields for a sample of Italian bonds, belonging to corporate and financial sectors, outstanding as of 30 June 2025. To test for the existence of a potential sustainability premium, the study employs a set of complementary methods, including uni-variate analysis, fixed‑effects regression models and propensity score matching, while controlling for standard bond characteristics.
Empirical findings underscore the presence of a negative and statistically significant ESG risk premium in the overall sample and, in particular, within the corporate sector, while no com-parable effect is identified in the financial segment consistently with existing literature and major international evidence. Furthermore, together with traditional bond characteristics (such as credit quality, issuer liquidity conditions, and the presence of embedded options), the issuer ESG rating shows a significant association with return dynamics. This suggests that the issuer ESG performance is as important as the bond sustainability label according to ICMA principles.
In the future, the risk premium and the methodology developed in this study could be employed to assess the impact of the evolution of the European regulatory framework on the domestic market for green bonds other than sovereign issuances (for example, within the context of the review process of the EU Green Bond Regulation), as well as of regulatory interventions affecting other types of debt securities (e.g. tokenised bonds). Moreover, the potential of the statistical techniques could be further explored to assess the possible development of early warning indicators in support of supervisory activities .  
 

Authors
Lucia Alessi - Joint Research Centre - European Commission (lucia.alessi@ec.europa.eu);
Monica Gentile - CONSOB, Research and Regulation Department (m.gentile@consob.it);

This research was produced with the financial support of the European Union. Its contents are the sole responsibility of the authors. The opinions expressed in this document are the authors’ personal views and are in no way be taken to reflect the official opinion of the organisations to which the authors belong. In citing this paper, it is therefore not correct to attribute the arguments expressed therein to CONSOB or the European Union.

The project was funded by the European Union via the Technical Support Instrument, managed by the ‘Reform and Investment Task Force’. The research was carried out within the technical support project ‘ESG Risk Management Framework for the Financial Sector’, managed by the European Commission Reform and Investment Task Force. The project aims to strengthen the capacity of beneficiary authorities to monitor, mitigate, and address ESG risks within the financial sector. Moreover, the research is included in CONSOB’s 2026 Regulatory Activities Plan.
We would like to thank Paola Deriu (CONSOB, Head of Research and Regulation Department), Guglielmina Onofri (CONSOB, General Officials for Sustainable Finance), Irene Tagliamonte (CONSOB, Head Regulatory Impact Analysis Office), Federico Picco (CONSOB, Head of Studies Office), Andrea Giannini (CONSOB, General Directorate) and Renato Grasso (CONSOB, Information Technology and Artificial Intelligence Division) for helpful comments and suggestions. Many thanks to Serena Fatica (Joint Research Centre - European Commission) and Roberto Panzica (Banco do Portugal) for sharing their code, and to Giacomo Cotignano (Joint Research Centre - European Commission) for supporting the construction of yield at issuance time series.