Is 'Greenness' Priced in the Market? Evidence from Green Bond Issuance in China
The Journal of Alternative Investments, Summer 2020; DOI: https://doi.org/10.3905/jai.2020.1.097
Posted: 2 Oct 2019
Date Written: September 24, 2019
Green bonds are bonds with a defined use of proceeds towards mitigating and adapting to climate change and solving environmental problems. While its market has expanded rapidly in recent years and attracted great investment attention, whether investors can identify greenwashing behaviors remains a primary concern. This paper takes advantage of the unique feature of the Chinese green bond market that allows a proportion of the proceeds to be used for non-green purposes. We find that greener bonds (more proceeds are used for green projects) are sold at a premium. This pricing differential is primarily driven by bonds whose proceeds are 100% used for green projects. Our results also show that green bonds verified by a third-party have lower yield spreads, and the effect is stronger for more reputable third-parties. Overall, our results suggest that investors only reward fully green bonds, and they can differentiate greenwashing.
Keywords: Climate change, Green finance, Green bonds, Asset pricing
JEL Classification: G11, G12, Q50
Suggested Citation: Suggested Citation