The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification
Department of Economics and Finance, University of Rome Tor Vergata, 00135 Rome, Italy
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Sustainability 2019, 11(4), 1098; https://doi.org/10.3390/su11041098
Received: 23 December 2018 / Revised: 3 February 2019 / Accepted: 14 February 2019 / Published: 19 February 2019
(This article belongs to the Special Issue Social Impact Investments for a Sustainable Welfare State)
If we examine the characteristics of a sample of green bonds matched with their closest brown bond neighbors, we encounter a challenge. Green bonds have higher yields, lower variance, and are more liquid. The institutional/private issuer and the green third-party verification/non-verification breakdowns help explain this puzzle. Green bonds from institutional issuers have higher liquidity with respect to their brown bond correspondents and negative premia before correcting for their lower volatility. Green bonds from private issuers have much less favorable characteristics in terms of liquidity and volatility but have positive premia with respect to their brown correspondents, unless the private issuer commits to certify the “greenness” of the bond. An implication of our findings is that the issuer’s reputation or green third-party verifications are essential to reduce informational asymmetries, avoid suspicion of green (bond)-washing, and produce relatively more convenient financing conditions.
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Keywords:
green bonds; environmental sustainability; bond yields; liquidity
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MDPI and ACS Style
Bachelet, M.J.; Becchetti, L.; Manfredonia, S. The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification. Sustainability 2019, 11, 1098. https://doi.org/10.3390/su11041098
AMA Style
Bachelet MJ, Becchetti L, Manfredonia S. The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification. Sustainability. 2019; 11(4):1098. https://doi.org/10.3390/su11041098
Chicago/Turabian StyleBachelet, Maria J., Leonardo Becchetti, and Stefano Manfredonia. 2019. "The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification" Sustainability 11, no. 4: 1098. https://doi.org/10.3390/su11041098
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