Green Factor Influence on the Yield of Stocks and Bonds in the Russian Financial Market

Abstract

In this paper we test whether environmental characteristics of assets influence their returns for the case of Russian financial market. Our main hypothesis based on the relevant literature is that if a spread between “green” and “brown” assets’ yield exists, it should be in favour of the brown assets. We employ relevant econometric models separately for stocks and for bonds. For the stock market we used realized returns and estimated the role of the green factor in the yield using the three-factor Fama–French model. While the resulting coefficient was not significant, on the whole we have observed that the realized return of the climate-risk hedge portfolio had a negative value over a nearly ten-year observation period. We have also demonstrated the applicability of the green factor calculations for estimating the degree of climate risk exposure for individual companies. Using data on a number of green bonds and their chosen “twin” bonds, we calculate the difference in the premium in the yield to maturity over that of a similar government bond for all pairs of “twin” bonds and proceed to check if this difference is significant, and if it can be attributed to the Greenium factor. We find that over the stable period in Russian financial markets (allowing for the most stable results) “green” bonds have lower yield to maturity - a result that is in line with previous results for other markets and suggests that green financing might be cheaper for companies. On the whole our results suggest that environmental considerations might be relevant in the Russian financial market during stable macroeconomic periods.

Keywords: ESG, sustainable investing, Greenium, Russia

JEL Classification: G10, G12