Green Bond Performance and Risk Indicators

Abstract

Green bonds are fixed income securities, but differ to traditional bonds with the ‘use of proceeds’ earmarked for investments in projects that have environmental benefits. There are currently no standards on environmental impact reporting for green bonds, which makes it difficult for investors to determine which green bonds are likely to make the largest contribution towards carbon reduction. This is addressed by construction of a set of indicators from financial and environmental data sets, utilizing advanced statistical methods. The indicators capture information relating to risk, performance and controlling indices. The indices measure different attributes of each specific taxonomy as defined by the Green Bond Principles and are further classified by user perspective: issuer, investor and regulator. This research contributes to the continued development, transparency and increased confidence in the functioning of the green bond market as a core capital provider for transitioning the economy to achieve the Paris Agreement goal of limiting warming to well below 2 degrees Celsius, compared to pre-industrial levels.

Keywords: Green bonds, ESG, sustainable finance, fixed income, KPI