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Green bonds as a tool against climate change?

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Abstract

While 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. Using matched bond-issuer data, we test whether green bond issues are associated to a reduction in total and direct (scope 1) emissions of non-financial companies. We find that, compared to 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.

Suggested Citation

  • Fatica, Serena & Panzica, Roberto, 2020. "Green bonds as a tool against climate change?," Working Papers 2020-10, Joint Research Centre, European Commission (Ispra site).
  • Handle: RePEc:jrs:wpaper:202010
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    File URL: https://publications.jrc.ec.europa.eu/repository/bitstream/JRC121894/jrc121894_green_bonds_as_a_tool_against_climate_change_final_tr.pdf
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    References listed on IDEAS

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    1. Malcolm Baker & Daniel Bergstresser & George Serafeim & Jeffrey Wurgler, 2018. "Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds," NBER Working Papers 25194, National Bureau of Economic Research, Inc.
    2. Tang, Dragon Yongjun & Zhang, Yupu, 2020. "Do shareholders benefit from green bonds?," Journal of Corporate Finance, Elsevier, vol. 61(C).
    3. King, Gary & Nielsen, Richard, 2019. "Why Propensity Scores Should Not Be Used for Matching," Political Analysis, Cambridge University Press, vol. 27(4), pages 435-454, October.
    4. Iacus, Stefano M. & King, Gary & Porro, Giuseppe, 2012. "Causal Inference without Balance Checking: Coarsened Exact Matching," Political Analysis, Cambridge University Press, vol. 20(1), pages 1-24, January.
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    More about this item

    Keywords

    climate change; green bonds; impact investing; corporate sustainability; environment;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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