Cui prodest? The heterogeneous impact of green bonds on companies' ESG score

With the aim of providing a comprehensive framework of analysis, the paper develops a signaling model in which green bonds are able to increase the environmental performance of companies, as they allow investors, endowed with environmental preferences, to uncover the adoption of clean production processes. Companies relying on green technologies are rewarded by lower financing costs. In particular, green bonds encourage more polluting firms to embark on the transition toward a cleaner production. Relying on a large sample of companies located worldwide and implementing a difference-in-difference strategy, we successfully test the model implications. The analysis also reveals that green bonds issued to finance mitigation policies are the most effective in improving companies' environmental performance. In line with model predictions, these bonds display the largest yield differential (greenium) with respect to their conventional peers.