Abstract
AbstractAlthough green bonds are becoming increasingly popular in the corporate finance practice, little is known about their implications and effectiveness in terms of issuers' environmental engagement. With the use of matched bond‐issuer data, we test whether green bond issues are associated to a reduction in total and direct (Scope 1) emissions of nonfinancial companies. We find that, compared with conventional bond issuers with similar financial characteristics and environmental ratings, green issuers display a decrease in the carbon intensity of their assets after borrowing on the green segment. The decrease in emissions is more pronounced, significant and long‐lasting when we exclude green bonds with refinancing purposes, which is consistent with an increase in the volume of climate‐friendly activities due to new projects. We also find a larger reduction in emissions in case of green bonds that have external review, as well as those issued after the Paris Agreement.
Highlights
Green bonds are debt instruments that differ from conventional fixed income securities only in that the issuer pledges to use the proceeds to finance projects that are meant to have positive environmental or climate effects
As further corroborating evidence to the signalling argument, we find a larger reduction in emissions for green bonds that have external review, as well as for those issued after the Paris Agreement
They measure the change in emissions of green bond issuers relative to the pre-issuance reference year, over and above the change observed for the control group comprising matched conventional issuers that do not resort to the green segment
Summary
Green bonds are debt instruments that differ from conventional fixed income securities only in that the issuer pledges to use the proceeds to finance projects that are meant to have positive environmental or climate effects. By laying down detailed criteria, such as mandatory reporting on the allocation of proceeds and on the environmental impact, as well as verification, the standard aims to improve the effectiveness, comparability and credibility of the European green bond market. Tang and Zhang (2020) and Flammer (2019) find that corporate green bond issuances are followed by positive stock market reactions, and help attract an investor clientele that values the long term and the environment These effects would not be exclusively driven by the potentially lower cost of capital associated to green debt. While the evidence for the full sample is mixed, remarkably we find a more pronounced and significant decrease in emissions when we exclude green bonds issued for refinancing existing projects This is consistent with an increase in the volume of climate friendly activities due to new projects.
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