Green Bonds: A Propitious Financial Instrument of Climate Finance

Abstract

Green bonds are a comparatively recent investment mechanism for green initiatives and are perceived as the first line of climate change protection. The aim of the article is to decide if the issuing of a green bond is perceived to be good news for market players, and also to ascertain whether developing markets, relative to established markets, are more inclined towards green bonds to tackle climate change. The study used an international sample of recent green bond issues and illustrated the possible effects of the issuing of a green bond for the issuer. A sample of 392 green bonds released from 2017 to 2020 is included. Event study methodology is used to analyse investor response to green bond issuance. Over the years, emerging markets have been found to be keen on greening projects by green bonds, much in line with established markets. The findings suggest that on the day of issuance of the green bonds the stock market responds adversely and reacts positively after the day. Hence statistical technique is applied on different event windows to obtain the cumulative abnormal returns (CAR). Statistical analysis concludes that the market responds adversely to the issuing of a green bond. This influence is particularly evident in the first issuing of green bonds and in developing markets. This research shows that proposals of green debt transmit unfavourable knowledge about the issuing companies. These results are relevant only in the case of green bonds issued by listed firms.