The Pricing of Green Bonds: Are Financial Institutions Special?

46 Pages Posted: 1 Jul 2020

See all articles by Serena Fatica

Serena Fatica

European Commission - Joint Research Centre

Roberto Panzica

Joint Research Center of the European Commission

Michela Rancan

Polytechnic University of Marche

Date Written: May 05, 2020

Abstract

The financial system plays a major role in the transition to a low-carbon economy. We investigate this issue analyzing the recent developments and challenges in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium when green bonds are issued by supranational institutions and corporates while there is no effect for financial institutions. We also document an effect for external review and repeated access to this market. Second, we investigate lending decisions by banks issuing green bonds. Our results show that these lenders reduce their funding towards more polluting segments of the economy but limited to the amount of loans they granted as lead bank in the deal. This mixed evidence about lending suggests that, at the time of issuance, investors may not identify a clear link between the greenbond issued by a financial institution and a green project, which would explain the absence of a green premium for financial issuers.

Keywords: Sustainable finance, climate change, green bonds, financial istitutions, bank loans

JEL Classification: G12, G20, Q52, Q53, Q54

Suggested Citation

Fatica, Serena and Panzica, Roberto and Rancan, Michela, The Pricing of Green Bonds: Are Financial Institutions Special? (May 05, 2020). Available at SSRN: https://ssrn.com/abstract=3623146 or http://dx.doi.org/10.2139/ssrn.3623146

Serena Fatica

European Commission - Joint Research Centre ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Roberto Panzica (Contact Author)

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
Ispra (VA), I-21027
Italy
93100 (Fax)

Michela Rancan

Polytechnic University of Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

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