Shades of Green: Unveiling the Impact of Municipal Green Bonds on the Environment

82 Pages Posted: 29 Mar 2021 Last revised: 18 Jul 2023

See all articles by Marta Campi

Marta Campi

Institut Pasteur - Hearing Institute

Gareth W. Peters

Heriot-Watt University - Department of Actuarial Mathematics and Statistics

Kylie-Anne Richards

University of New South Wales (UNSW) - School of Mathematics and Statistics; University of Technology Sydney (UTS) - UTS Business School

Date Written: March 20, 2021

Abstract

Green bonds allocate proceeds towards environmentally beneficial projects, distinguishing themselves from traditional bonds. However, investors often find it challenging to assess the carbon reduction potential of these bonds because of the lack of standardised environmental impact reporting. In response to this, our research constructs a unique set of indicators derived from financial and environmental datasets, using advanced statistical techniques. A novel method using kernel Principal Component Analysis (kPCA) and Canonical Correlation Analysis (CCA) is applied to detect cross-correlation in multivariate datasets. This approach innovatively handles variable comparability issues and the differential treatment of categorical and numerical variables. A significant finding of this study emerges when this methodology is applied to municipal financial data and pollution data from nine California counties. The results show a clear and interpretable correlation directly linked to the amount of green bond issuance, underscoring the tangible impact of these financial instruments on environmental outcomes. However, with the weak cross-correlation observed between climate and financial data sets, further research is recommended over a broader timescale. Such research will confirm the direct effect of green bonds on climate change reduction, enhancing market transparency, and bolstering confidence in green bonds as a crucial tool for the economic transition required by the Paris Agreement.


The repository for the code is available at https://github.com/mcampi111/Shades-of-Green-Unveiling-the-Impact-of-Municipal-Green-Bonds-of-the-Environment

There is a shiny app available at https://mcjc-2020.shinyapps.io/final_results/

Keywords: Green bonds, ESG, sustainable finance, fixed income, KPI, PCA, kPCA, CCA

Suggested Citation

Campi, Marta and Peters, Gareth W. and Richards, Kylie-Anne and Richards, Kylie-Anne, Shades of Green: Unveiling the Impact of Municipal Green Bonds on the Environment (March 20, 2021). Available at SSRN: https://ssrn.com/abstract=3808550

Marta Campi

Institut Pasteur - Hearing Institute ( email )

France

Gareth W. Peters

Heriot-Watt University - Department of Actuarial Mathematics and Statistics

Edinburgh, Scotland EH14 4AS
United Kingdom

Kylie-Anne Richards (Contact Author)

University of New South Wales (UNSW) - School of Mathematics and Statistics ( email )

Sydney, 2052
Australia

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

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