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As an important financial instrument for sustainable transition, sustainable bonds have attracted attention from the capital market. This paper explores the causal relationship between the issuance of two types of sustainable bonds—namely, green bonds and sustainability-linked bonds—and corporate credit default risk, as well as the impact of the portfolio greenness and ESG performance on corporate credit default risk. This paper analyzes the CDS spread of companies that have issued green or sustainability-linked bonds in EUR and USD between 2015 and 2025. The empirical results show that compared to conventional bond issuers without any sustainable bond issuance, green or sustainability-linked bond issuers have lower corporate credit default risk. While the greenness of a company’s portfolio does not affect green bond issuers’ credit risk, the lower credit risk for sustainability-linked bond issuers can be explained by a better ESG performance. This study provides evidence and insights for companies, banks, and investors who intend to reduce risks while contributing to a more sustainable future.
