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The green bond market has significantly improved in recent years thanks to the development of financial instruments and the rising climate change concerns. Given this backdrop, this paper investigates the effects of returns in different financial markets, i.e. the United States Treasury Bonds, the Standard & Poor's stock market, the United States Dollar, Gold, Crude Oil, and Bitcoin on the Green Bond returns (the Standard & Poor's Green Bond Index) from September 17, 2014, to September 1, 2022. The results from the robust linear and machine learning estimators indicate that the returns of the United States Treasury Bonds and the United States Dollar are negatively related to the Green Bond returns. Meanwhile, Gold returns positively affect Green Bond returns. The quantile regression estimations of Machado–Santos Silva also show that these findings are valid in different quantiles. The paper also discusses policy implications related to climate change and the development of financial instruments to promote green investments. [ABSTRACT FROM AUTHOR]

The study of the financial repercussions of low-carbon policy has focused mainly on stocks, leaving bonds out of the picture. The objective of this paper is to assess the impact of low-carbon policy upon European bond returns. This is done by extending the Fama and French two factor model for bonds with an EU-ETS participation factor: GMC (Green minus Carbon). This paper makes four contributions. Firstly, it provides a statistically highly significant measure of the sensitivity of bond portfolio returns to the GMC factor. Secondly, it shows the presence of a green premium in the European bond market in between 2008 and 2018. Thirdly, evidence is found that the addition of an environmental factor improves the performance of the original model. Fourthly, the carbon stress test put forward is able to indicate the effects of a plausible but more severe average EU-ETS carbon price on bond returns. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between green bonds (that is, bonds whose proceeds are committed to financing green projects) and carbon emissions at the aggregate level. Using data for US states, I find that the issuance of $1,000 of green bonds per capita is associated with a subsequent decrease in state-level emissions by 0.9–1.4 per cent. I obtain similar magnitudes using cross-country data. These results are stronger for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. [ABSTRACT FROM AUTHOR]

In this paper, we investigate the mean and volatility spillover between the price of green bonds and the price of renewable energy stocks using daily price series from 02/11/2011 to 31/08/2021. The unrestricted trivariate VAR-BEKK-GARCH model is employed to examine potential causality, mean, and volatility spillover effects from the green bond market to the renewable energy stock market and vice-versa. The results from the VAR-BEKK-GARCH model indicate that there exists a uni-directional Granger causality from renewable energy stock prices to green bond prices. While the price of green bonds is positively influenced by its own lagged values and the lagged values of renewable energy stock prices, only the past price value of renewable energy stocks has a positive effect on the current price value. We identified a uni-directional volatility spillover from renewable energy stock prices to green bond prices. However, there was no shock spillover from both sides of the market. This research shows that investors in the green bond market should always consider information from the renewable energy stock market because of the causal link between renewable energy stocks and green bonds. [ABSTRACT FROM AUTHOR]

The present paper examines the role that green bonds can play in financing the transition to low carbon economy. We first establish the need for central banks to respond to climate change challenges, and we present the main ways in which they can get involved. We explain why green bonds should be used as an instrument of choice for financing the low carbon transition, based first, on the theoretical argument of intergenerational burden sharing and second, on the practical need for large, long-term infrastructure investments. After defining green bonds, we present their main characteristics. We then summarize the main developments in the green bonds market during the last decade. We conclude by presenting existing challenges and barriers and ways to overcome them so that the green bonds market develops further. [ABSTRACT FROM AUTHOR]

In recent years, the green bond market has seen significant growth as a means of financing environmentally-friendly projects. While much research has focused on pricing, limited attention has been given to green bond investors. This paper analyzes the preferences of different investor groups for green bonds and introduces the term "green bond preferred habitat". Conceptually, green bond preferred habitat investors hold green bonds disproportionally and display lower price elasticity than other investors. This study combines information from 2693 unique green bonds with confidential bond-level portfolio holdings data from the ECB over the period 2016-Q4 to 2022-Q4, covering more than 12 million observations. The results demonstrate that European investors, particularly mutual funds and pension funds, show a high demand for green bonds. In contrast, insurance corporations tend to avoid green bonds. Our findings show that the demand for green bonds among mutual funds and pension funds is price inelastic, while banks and insurance corporations display an elastic demand. These findings are robust for potential endogeneity concerns when we apply matching techniques, are stronger for domestic green bonds, and also apply to sustainability-linked bonds. These results on the divergence in investor demand are important for green bond issuers because firms and governments issue green bonds to cater certain investors willing to sacrifice returns. One theoretical implication is that if green bond preferred habitat is sufficiently strong, it creates a price wedge due to their high demand for green bonds which explains the existence of a greenium. • Green bond markets have grown significantly in recent years, expanding to over two trillion euros in market size by the end of 2022. While the market has expanded, relatively little is known about who holds green bonds. • Using granular bond-level data from the ECB securities holdings statistics (SHS-S) we aim to fill this gap by showing that European investors invest 3.7% of their bond portfolio in green bonds, while green bonds represent only 1.5% of the total bonds outstanding value. • In particular, we show that mutual funds and pension funds invest disproportionally in green bonds and that their holdings are very price insensitive, which fits into our proposed theoretical framework of "green bond preferred habitat". By contrast and surprisingly, European insurance corporations shun green bonds. [ABSTRACT FROM AUTHOR]

Using a proprietary database of corporate green bonds issued in China, we investigate the effect of green bond issuance on firm‐level carbon performance and its impact mechanism. We utilize the Economic Input–Output Life Cycle Assessment (EIO‐LCA) to evaluate corporate carbon performance and use all the 1074 firms that issued corporate bonds in 2009–2018 as the sample group. The empirical results reveal that the companies did not effectively achieve the expected carbon performance improvement post‐issuance. The mechanism analysis suggests that this might have been because the primary motivation for the companies to issue green bonds is to ease their financial constraints. Environmental regulations (at the national and industrial level) play a positive role in the relations between corporate green bond issuance and carbon performance. Overall, the findings raise an alert on the value of Chinese corporate green bonds in climate change mitigation and indicate the need for information disclosure and carbon performance‐linked supervision on green bond issuers. [ABSTRACT FROM AUTHOR]

Green bonds have increasingly been utilized around the world as a source of financing for renewable energy development, designed with compliance requirements and measurable economic returns to investors, while mitigating climate change. However, the efficacy of green bond arranged in the emerging economies for financing renewable energy assets and how the underlying risks are managed have remained to be explored. The paper aims to examine the evolving green financial system sponsored by both public and private institutions in managing such risks within China's emerging economy. A case study of green financing for a bundle of wind power assets led by a state-owned enterprise (SOE) reveals an alternative approach by structuring public–private collaboration while stipulating market-based financial incentives to institutional stakeholders under a political economy. This institutional consortium is composed of a state development bank, a commercial bank, credit rating agencies, institutional and private investors, regional power purchasers, and carbon trading entities. Financial stakeholders' risk in such emerging sustainable investment is moderated by these participating institutions and structured "upsides" from carbon trading aligned with the framework of green finance and standards for green bond development. The results reveal the potentials of scaling up the development of renewable energy by adequately managing and sharing key risks, while allocating substantial funding into renewable energy projects under such a green financial system that is to be complementary with a scalable post COVID-19 economic recovery. [ABSTRACT FROM AUTHOR]

With growing global concern for mainstreaming of environmental protection measures, the promotion of climate change and sustainable development policies, the international community, represented by international organizations, research institutions, and world‐wide businesses, has focused on green finance. Existing research on green finance in the context of environmental trends has been reviewed in terms of the products and determinants of green finance. This study aims to assess the impact of green finance on the decarbonization of economies in the context of a review of current and potential problems and prospects. Based on the examples of the People's Republic of China, the Russian Federation, and the United States of America, the study suggests that today green finance has not yet demonstrated a tangible effect in these countries. Based on the results of the study, it can be argued that in the three countries, the main tool of green finance in the field of decarbonization is green bonds; other types of green finance are used to a limited extent. The progress of the United States and China is not so obvious, but based on the overall involvement of relevant government agencies and businesses in the green bond market, it can be assumed that the results will be observed in the near future. [ABSTRACT FROM AUTHOR]

Climate finance has grown rapidly. What does this mean for people who construct careers in finance that leverage expertise to frame sustainability and climate change as investment decisions? What do their identities mean for the markets they create? This article examines how the careers of climate finance professionals impact them both as professionals and as people. I examine what climate action and impact mean in their decision-making. I find that practitioners interpret their careers around pivotal decisions that brought them into climate finance. This moralistic decision-making embedded in practitioner biographies highlights the effect of a particular ethical field in climate finance. In producing climate finance instruments through performative and data work, people transform into climate finance professionals. [ABSTRACT FROM AUTHOR]

Although 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. With the use of matched bond‐issuer data, we test whether green bond issues are associated to a reduction in total and direct (Scope 1) emissions of nonfinancial companies. We find that, compared with 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. [ABSTRACT FROM AUTHOR]