Is Sustainable Investment Really Sustainable in Crisis Times? Exploring the Impact of COVID-19 on Green Bonds and ESG Indices

The evolution of COVID-19 provides information (e.g. daily confirmed contagion cases) to test the performance and resilience of green bonds and ESG indices during crisis periods. After controlling for variables accounting for the state of the economy and market conditions, we find a significant nonlinear effect: A mild/sharp increase in the cases has a positive/negative impact for the markets. The latter effect might also be captured by the policies implemented to fight the virus (stringency index), the inefficiency of such policies being what really drives the markets downward. Overall, ESG investment seems to be resilient to continuous market instability.