Rethinking the Value and Emission Implications of Green Bonds

The theory of sustainable investing proposes that investors are willing to take lower returns because they relish holding green assets, which hedge climate risk by encouraging pro-environmental outcomes. We test this proposition using a large sample of green bonds and find three exciting results. First, the issuer concentration in this asset class influences the event study results suggesting that Tesla green bonds were behind shareholders' positive response. Second, unlike no yield differential in the primary market, green bonds in the secondary market have a lower yield of negative 32 basis points relative to a propensity score-matched sample, a finding primarily attributable to the green bonds issued by the financial sector. Green bonds issued by four polluting sectors – the energy, industrial, material, and utility sectors – are associated with relatively higher yields in the secondary market, while we would have expected investors in such sectors to provide the operators with incentives to improve their environmental footprint. Third, the emissions for issuers of green bonds do not fall even after four years following issuance. Our work raises questions on the value of green bonds for investors and the environment.