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

We evaluate the pricing impact of Thailand’s Thai ESG Fund – a tax-incentivized retail program launched in 2023 Q4 – on the corporate bond market, separating primary-market issuance from secondary-market repricing. Using Thai corporate THB bonds issued from 2018 to 2024, we test two hypotheses. At issuance (H1), we compare ESG coupons with observationally similar non-ESG issues via propensity-score matching. The average pairwise coupon spread (ESG minus matched non-ESG) is -29 bps overall, -23 bps pre-policy, and -92 bps post-policy, yielding a post-pre difference of -69 bps (all statistically significant). In the secondary market (H2), we analyze seasoned bonds issued in or before 2023 Q3 and estimate a difference-in-differences regression with bond and quarter fixed effects, supplemented by an event study. The ESG×Post coefficient ranges from +31 to +42 bps, and event-time estimates show flat pre-trends with the ESG spread turning positive from two quarters and building to 49 bps by the fourth quarter. Together, the policy reduces funding costs for new ESG issues while raising required yields on older ESG bonds, consistent with demand concentrating in newly eligible, on-the-run ESG supply and a higher off-the-run liquidity premium.