Financial Management. Green Bonds – Success or Failure?

Hammer, Thomas and Siegfried, Patrick (2021): Financial Management. Green Bonds – Success or Failure? Published in: Expert Journal of Finance , Vol. 9, (31 December 2021): pp. 1-8.

Abstract

This text will explain which role “Green Bonds” play in financing projects and how the green factor is weighted. It will be discussed on how the term “green” can change the price of the bond, if there is a “green premium” and for which group of investors this type of bond is interesting. We will discuss ways to reduce their cost of capital, also considering the risks and on ways on how to improve their conditions. The sustainable and eco-friendly aspects are also highlighted in this text and they might become crucial in future investing, which gives the bond an interesting role.

• Item Type: MPRA Paper
• Language: English
• Keywords: Green Bonds, ESG, Sustainability, COP21
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

References

Barclays, Credit Research (Ryan Preclaw and Anthony Bakshi) 18th of September 2015. The Cost of Being Green [online] Available at: https://www.environmental-finance.com/assets/files/US_Credit_Focus_The_Cost_of_Being_Green.pdf [Accessed on 31 July 2021].

Bultheel, C., Morel, R., Hainaut, H., Deheza, M., Shishlov, I., Depoues, V. and Leguet, B., 2015. COP21 – success at ‘the end of the beginning. Climate Brief #38, (Paris: I4CE - Institute for Climate Economics, December 2015). CBI, 2015. Bonds and Climate Change, The State of the Market.

Clapp, C., Alfsen, K.H., Lund, H.F. and Pillay, K., 2015. Green bonds and environmental integrity: Insights from cicero second opinions. Nature Climate Change, 5, Insight from CICERO Second Opinions, Oslo: CICERO. [online] Available at: https://cicero.oslo.no/en/posts/news/green-bonds-and-environmental-integrity [Accessed on 28 July 2021].

Cochu, A., Glenting, C., Hogg, D., Georgiev, I., Skolina, J., Eisinger, F., Jespersen, M., Agster, R., Fawkes, S. and Chowdhury, T., 2016. Study on the potential of green bond finance for resource-efficient investments. European Commission Report.

Ehlers, T. and Packer, F., 2017. Green Bond Finance and Certification. Bank for International Settlements, Quarterly Review. [online] Available at: https://www.bis.org/publ/qtrpdf/r_qt1709h.pdf [Accessed on 30 July 2021].

Flaherty, M., Gevorkyan, A., Radpour, S. and Semmler, W., 2017. Financing climate policies through climate bonds–A three stage model and empirics. Research in International Business and Finance, 42, pp.468-479.

Flammer, C., 2021. Corporate green bonds. Journal of Financial Economics, 142(2), pp.499-516. Kane, S. and Shogren, J.F., 2000. Linking adaptation and mitigation in climate change policy. In Societal adaptation to climate variability and change (pp. 75-102). Springer, Dordrecht.

KPMG, 2015. Gearing up for Green Bonds. [online] Available at: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/sustainable-insight/Documents/gearing-up-for-green-bonds-v2.pdf [Accessed on 17 July 2021].

Mackenzie, C. and Ascui, F., 2009. Investor leadership on climate change: an analysis of the investment community's role on climate change, and snapshot of recent investor activity.

Morgan Stanley Investment Management, 2019. Driving Value in Fixed Income Through ESG. Morgan Stanley Investment Management. [online] Available at: https://www.morganstanley.com/im/publication/insights/investment-insights/ii_drivingvalueinfixedincomethroughesg_us.pdf [Accessed on 30 July 2021].

Nordic Public Sector Issuers, 2019. Position Paper on Green Bonds Impact Reporting, Stockholm January 2019. OECD, 2015. Mapping Channels to Mobilise Institutional Investment in Sustainable Energy, Green Finance and Investment. OECD Publishing, Paris [online] Available at: https://www.oecd.org/g20/topics/energy-environment-green-growth/mapping-channels-to-mobilise-institutional-investment-in-sustainable-energy-9789264224582-en.htm [Accessed on 30 July 2021].

Ostlund, E., 2015. Are investors rational profit maximisers or do they exhibit a green preference. Evidence from the green bond market. Stockholm School of Economics master’s thesis in economics (21875), Stockholm.

Petrova, A., 2016. Green bonds: lower returns of higher responsibility?. Radboud University, Nijmegen School of Management.

Shishlov, I., Morel, R. and Cochran, I., 2016. Beyond transparency: unlocking the full potential of green bonds. Institute for Climate Economics, pp.1-28.

Wilkins, M., Shipman, T. and Wade, T., 2016. The Corporate Green Bond Market Fizzes as the Global Economy Decarbonizes. Standard & Poor’s. April, 15, p.2016.

World Bank Green Bond Impact Report 2018, “10 Years of Green Bonds – From Evolution to Revolution”, (Washington: International Bank for Reconstruction and Development, 2018).

Wulandari, F., Schäfer, D., Stephan, A. and Sun, C., 2018. Liquidity risk and yield spreads of green bonds.

Krimphoff, J., Charmann, S., Clucas, N., Emfel, M., Favier, A. and Godinot, S., 2016. Green bonds must keep the green promise! A call for collective action towards effective and credible standards for the green bond market. WWF. Paris. [online] Available at: https://d2ouvy59p0dg6k.cloudfront.net/downloads/20160609_green_bonds_hd_report.pdf [Accessed on 30 July 2021].

WWF, 2016. Green Bonds must keep the Green Promise. Call for Collective Action towards effective and credible Standards for the Green Bond Market, research report produced by WWF in collaboration with Group Caisse des Dépots and CBI, 2016. [online] Available at: https://d2ouvy59p0dg6k.cloudfront.net/downloads/20160609_green_bonds_hd_report.pdf [Accessed on 30 July 2021].

Zerbib, O.D., 2019. The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking & Finance, 98, pp.39-60.