Rethinking the Value and Emission Implications of Green Bonds

Abstract

Our analysis of green bonds issued between 2013-2022 reveals a distinctive shareholder preference for such assets, particularly among financial institutions. In the secondary market, green bonds issued by financial firms’ trade at a 'greenium' of 8.2 basis points compared to matched samples, attributed potentially to financial firms’ efforts in channeling funds to sustainability linked loans. Past work documenting a positive stock price reaction to issuance of green bonds is isolated to financial firms and to specific issuers. Moreover, issuers of green bonds with higher emissions before the green bond issue report an insignificant reduction in such emissions post-issuance. Our analysis of the sustainable lending practices of these gatekeepers reveals that the 'greenium' earned in the green bond market does not translate to the green loan market. Furthermore, borrowers' performance remains unchanged in the short term, indicating a lack of due diligence by the gatekeepers. This study underscores the complex relationship between financial markets and environmental stewardship.