Abstract
We analyse the existence of a green bond premium and find a negative premium of 8 to 14 basis points. We are further interested in the influence of ESG ratings on green bonds to determine if investors differentiate between the shade of green. Examining a unique dataset of green bonds, we find a statistically significant influence of ESG ratings on bond spreads. A one-point increase in the weighted average ESG score leads to a decrease in the spread of 6 to 13 basis points. Interestingly, the results are not driven by the environmental friendliness of the green bond issuer, but through the company’s governance.
Similar content being viewed by others
Notes
We forgo to use a rating of a comparable bond. Credit ratings lower the information asymmetry between the issuer and the investors, and this might lead to a bias of the results in using comparable bonds.
Floaters are not included in the green bond index as well as the global aggregate index.
Depending on the model, one or three ESG variables are used.
We thank the anonymous reviewer for this alternative explanation.
In an alternative model, we have replaced the USD dummy variable with a variable controlling for bonds issued in Euro. Using this alternative variable does not change the results for the other variables. The results of this alternative model are not shown for reasons of brevity but are upon on request.
For reasons of brevity, the correlation matrix is not shown in the paper but is available upon request.
References
Bachelet, Maria J., Leonardo Becchetti, and Stefano Manfredonia. 2019. The green bonds premium puzzle: The role of issuer characteristics and third-party verification. Sustainability 11(4): 1098.
Barnett, Michael L., and Robert M. Salomon. 2012. Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal 33(11): 1304–1320.
Berg, Florian, Julian Kölbel, and Roberto Rigobon. 2019. Aggregate confusion: The divergence of ESG ratings. SSRN Working Paper. https://ssrn.com/abstract=3438533.
Capelle-Blancard, Gunther, and Stéphanie Monjon. 2012. Trends in the literature on socially responsible investment: Looking for the keys under the lamppost. Business Ethics: A European Review 21(3): 239–250.
Chatterji, Aaron K., David I. Levine, and Michael W. Toffel. 2009. How well do social ratings actually measure corporate social responsibility? Journal of Economics & Management Strategy 18(1): 125–169.
Chatterji, Aaron K., Rudolphe Durand, David I. Levine, and Samuel Touboul. 2016. Do ratings of firms converge? Implications for managers, investors and strategy researchers. Strategic Management Journal 37(8): 1597–1614.
China Green Bond Market. 2019. Research Report. Climate Bonds Initiative and China Central Depository & Clearing Research Centre (CCDC Research). https://www.climatebonds.net/files/reports/china-sotm_cbi_ccdc_final_en260219.pdf.
Dorfleitner, Gregor, Gerhard Halbritter, and Mai Nguyen. 2015. Measuring the level and risk of corporate responsibility—An empirical comparison of different ESG rating approaches. Journal of Asset Management 16(7): 450–466.
Gatti, Stefano, and Andrea Florio. 2018. Issue spread determinants in the green bond market: The role of second party reviews and of the Green bond Principles. In Research Handbook of Finance and Sustainability. Edward Elgar Publishing.
Ge, Wenxia, and Mingzhi Liu. 2015. Corporate social responsibility and the cost of corporate bonds. Journal of Accounting and Public Policy 34(6): 597–624.
Gianfrate, Gianfranco, and Mattia Peri. 2019. The green advantage: Exploring the convenience of issuing green bonds. Journal of Cleaner Production 219: 127–135.
Hachenberg, Britta, and Dirk Schiereck. 2018. Are green bonds priced differently from conventional bonds? Journal of Asset Management 19(6): 371–383.
Kapraun, Julia, and Christopher Scheins. 2019. (In)-Credibly green: Which bonds trade at a green bond premium? SSRN Working Paper. https://doi.org/10.2139/ssrn.3347337.
Karpf, Andreas, and Antoine Mandel. 2017. Does it pay to be green? SSRN Working Paper. https://doi.org/10.2139/ssrn.2923484.
Kuhn, Dennis, Florian Kiesel, and Dirk Schiereck. 2018. Determinanten von Credit Spreads in Green bonds in europäischen Emissionsmärkten. Zeitschrift für Umweltpolitik & Umweltrecht 4: 422–436.
Laufer, William S. 2003. Social accountability and corporate greenwashing. Journal of Business Ethics 43(3): 253–261.
Maul, Daniel, and Dirk Schiereck. 2017. The bond event study methodology since 1974. Review of Quantitative Finance and Accounting 48(3): 749–787.
Menz, Klaus-Michael. 2010. Corporate social responsibility: Is it rewarded by the corporate bond market? A critical note. Journal of Business Ethics 96(1): 117–134.
Nollet, Joscha, George Filis, and Evangelos Mitrokostas. 2016. Corporate social responsibility and financial performance: A non-linear and disaggregated approach. Economic Modelling 52: 400–407.
Partridge, Candace and Francesca Medda. 2018. Green premium in the primary and secondary US municipal bond markets. SSRN Working Paper. https://doi.org/10.2139/ssrn.3237032.
Pierce, Jason R., and Herman Aguinis. 2013. The too-much-of-a-good-thing effect in management. Journal of Management 39(2): 313–338.
Polbennikov, Simon, Albert Desclée, Lev Dynkin, and Anando Maitra. 2016. ESG ratings and performance of corporate bonds. The Journal of Fixed Income 26(1): 21–41.
Preclaw, Ryan, and Anthony Bakshi. 2015. The cost of being green. Barclays Research. https://www.environmental-finance.com/assets/files/US_Credit_Focus_The_Cost_of_Being_Green.pdf, Accessed 20 Feb 2020.
Schiereck, Dirk, Gunnar Friede, and Alexander Bassen. 2019. Financial performances of green securities. In The rise of green finance in Europe, ed. M. Migliorelli and P. Dessertine. Cham: Palgrave Studies in Impact Finance, Palgrave Macmillan.
Semenova, Natalia, and Lars G. Hassel. 2015. On the validity of environmental performance metrics. Journal of Business Ethics 132(2): 249–258.
Stellner, Christoph, Christian Klein, and Bernhard Zwergel. 2015. Corporate social responsibility and Eurozone corporate bonds: The moderating role of country sustainability. Journal of Banking & Finance 59: 538–549.
Trumpp, Christoph, and Thomas Guenther. 2017. Too little or too much? Exploring U-shaped relationships between corporate environmental performance and corporate financial performance. Business Strategy and the Environment 26(1): 49–68.
Wu, Yue, Kaifu Zhang, and Jinhong Xie. 2020. Bad greenwashing, good greenwashing: Corporate social responsibility and information transparency. Management Science 66(7): 2801–3294.
Zerbib, Oliver D. 2019. The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking & Finance 98: 39–60.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Immel, M., Hachenberg, B., Kiesel, F. et al. Green bonds: shades of green and brown. J Asset Manag 22, 96–109 (2021). https://doi.org/10.1057/s41260-020-00192-z
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1057/s41260-020-00192-z