Rethinking the Value and Emission Implications of Green Bonds

42 Pages Posted: 10 Oct 2022 Last revised: 23 Dec 2023

See all articles by Jitendra Aswani

Jitendra Aswani

Harvard University

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: September 11, 2022

Abstract

This paper (re)examines investors' green asset preferences and issuer's environmental performance. Using green bonds issued from 2013-2020, we find that shareholders' reactions to green bond issue announcements follow a skewed distribution and are mainly driven by repeat issuers or financial firms. Unlike no yield differential in the primary market, green bonds in the secondary market have a lower yield of negative 8 basis points (adjusted to liquidity risk) relative to a propensity score-matched sample. Somewhat contrary to the idea that investors are willing to take a lower yield to assist polluters in cleaning up, the secondary market “greenium” is, however, attributable to green bonds issued by the financial sector rather than those of polluting sectors. Positive reaction to green bonds by financial firms can be attributed to their gatekeeper role. Surprisingly, issuers' emissions remain the same four years after the issuance of green bonds, suggesting that they have modest to no environmental impact in the short run. Our work highlights the importance of understanding the intricacies of the market for examining green bond pricing. It shows that issuers cannot improve their environmental performance, at least in the short run, and financial firms are gaining the greenium due to their gatekeeper role.

Keywords: Sustainable Finance; Climate Change; Green Bonds; Corporate Sustainability; ESG

JEL Classification: G12, G14

Suggested Citation

Aswani, Jitendra and Rajgopal, Shivaram, Rethinking the Value and Emission Implications of Green Bonds (September 11, 2022). Available at SSRN: https://ssrn.com/abstract=4215882 or http://dx.doi.org/10.2139/ssrn.4215882

Jitendra Aswani (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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