The Impact of Green Bond Issuance on Firms’ Financial and ESG Performance: Does the Proportion of Green Bonds Matter?

Abstract

Green bonds have become an important tool in sustainable finance to support climate-friendly investment projects. In this context, the objective of this study is to understand the effect of a company’s green bond issuance on its subsequent environmental performance. To this end, we collect data on the number and amount of green bonds issued by 75 issuer companies worldwide from 2016 to 2020. Our empirical results show that green bond issuance is positively related to ESG disclosure scores and its three dimensions. However, it exhibits an insignificant relationship with ESG performance, measured by GHG emissions, energy consumption, the proportion of women on board, and board size. Regarding financial performance, the amount of green bonds issued negatively correlates with ROA and ROE for European firms and firms in light industries, respectively. In addition, the effect of green bond issuance on a company’s ESG disclosure score is temporary as the impact of green bond issuance is smaller and less statistically significant at longer lags. Finally, country-level sustainable development scores have a negative relationship with firms’ GHG emissions, with an effect which is significant only after 1 or 2 years.

Keywords: Green Bonds, ESG performance, Financial performance, Panel data.