Green Bonds: The Sovereign Issuers’ Perspective

Abstract

This paper aims at providing an assessment of green bonds from the perspective of sovereign issuers. After a brief depiction of green bonds’ features, we describe the market evolution, present the EU regulatory framework and identify the main benefits and costs for sovereign issuers. We focus on the financial performance of these securities in primary and secondary markets. First, we compare the yields at issuance of sovereign green bonds with non-green bonds of the same issuer with the same maturity. Then we analyse the secondary market performance of green bonds issued by France, Belgium, Ireland and the Netherlands, and we do not find, any remarkable price difference between green and conventional bonds, even after controlling for their different degree of liquidity. Nevertheless, this should not discourage Sovereigns from entering the market since the reason for issuing these securities does not simply hinge upon short-term financial convenience. Green bonds can actually help Sovereigns to mitigate environmental risks and to cope with the intergenerational trade-off in climate-related policies.