Author links open overlay panel, ,
Under a Creative Commons license
open access
Highlights
- •
Not all green bonds have lower yield at issuance than similar conventional bonds.
- •
The yield gap benefits only supranational institutions and non-financial corporates.
- •
Credibility and reputation of the issuer translate into even lower green returns.
- •
After issuing green bonds banks shift lending away from carbon intensive sectors.
Abstract
The financial system plays a major role in the transition to a low-carbon economy. We shed light on this analyzing recent developments in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium for green bonds issued by supranational institutions and corporates but no yield differences in case of issuances by financial institutions. We also document an effect for external review and repeated access to the green bond market. Second, we show that banks that issue green bonds reduce lending towards carbon-intensive sectors, but limited to the loan amounts granted in the role of lead bank in the deal. This mixed evidence about lending suggests that, at the time of issuance, investors may not be able to identify a clear link between the greenbond issued by a financial institution and a specific green investment project, which would explain the absence of a green premium for financial issuers.
JEL Classification
G12
G20
Q52
Q53
Q54
Keywords
Sustainable finance
Climate change
Green bonds
Financial institution
Bank loans
Cited by (0)
- ☆
-
We thank two anonymous referees and conference participants at the EC Academic Conference on Promoting Sustainable Finance (Brussels), 2019 CBI Annual Meeting (London), 18th International CREDIT Conference (Venice), International Finance and Banking Society (IFABS) conference on Reinventing Banking and Sustainable Finance (Angers), 13th Seminar on Financial Stability at the Central Bank of Romania, and EDHEC Climate Finance conference (Paris) for helpful comments. This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. The work was carried out while Michela Rancan was affiliated to the Joint Research Centre of the European Commission. The opinions and views expressed in this paper are solely those of the authors and do not necessarily represent the views of the European Commission.
© 2021 The Authors. Published by Elsevier B.V.
