Tax Incentives and the Cost of Sustainable Debt: Evidence from Thailand's ESG Fund Policy

Thailand’s tax-incentivized ESG Fund, introduced in late 2023, reshapes corporate bond pricing by pushing issuance and secondary markets in different directions. New ESG bonds benefit from markedly lower funding costs, with average coupons 29 bps below comparable non-ESG issues and the discount widening to 92 bps after the policy took effect. Meanwhile, seasoned ESG bonds face higher required yields—about 31–42 bps above non-ESG counterparts—as investor demand concentrates on newly eligible, on-the-run supply, increasing the liquidity premium on older paper over subsequent quarters. Together, the patterns reveal a policy trade-off: incentives successfully boost affordability for new sustainable debt while inadvertently raising yield pressures on existing ESG bonds.

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