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The pricing of green bonds: are financial institutions special?

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Abstract

The financial system plays a major role in the transition to a low-carbon economy. We investigate this issue analysing the recent developments and challenges in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium when green bonds are issued by supranational institutions and corporates while there is no effect for financial institutions. We also document an effect for external review and repeated access to this market. Second, we investigate lending decisions by banks issuing green bonds. Our results show that these lenders reduce their funding towards more polluting segments of the economy but limited to the amount of loans they granted as lead bank in the deal. This evidence may explain why we do not find a green premium for financial issuers. Yet it also suggests that the banking system may play a much larger role in channelling funds towards low-carbon activities, and thus reducing the environmental risks also for the financial system.

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  • Serena Fatica & Roberto Panzica & Michela Rancan, 2019. "The pricing of green bonds: are financial institutions special?," Working Papers 201907, Joint Research Centre, European Commission (Ispra site).
  • Handle: RePEc:jrs:wpaper:201907
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    Cited by:

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    2. Palea, Vera & Drogo, Federico, 2020. "Carbon Emissions and the Cost of Debt Financing: What Role for Policy Commitment, Firm Disclosure and Corporate Governance?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 202002, University of Turin.
    3. Pauline Deschryver & Frederic de Mariz, 2020. "What Future for the Green Bond Market? How Can Policymakers, Companies, and Investors Unlock the Potential of the Green Bond Market?," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(3), pages 1-26, March.
    4. Clara I. González & Soledad Núñez, 2019. "Mercados, entidades financieras y bancos centrales ante el cambio climático: retos y oportunidades," Working Papers 2019-06, FEDEA.
    5. K. Thomas Liaw, 2020. "Survey of Green Bond Pricing and Investment Performance," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 13(9), pages 1-12, August.

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    More about this item

    Keywords

    sustainable finance; climate change; bond interest rates; financial institutions;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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