Working Paper: NBER ID: w25950
Authors: Caroline Flammer
Abstract: This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the “green bond boom” witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies’ financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies’ environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.
Keywords: green bonds; sustainable finance; environmental performance; financial performance; public policy
JEL Codes: G32; Q2; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Green bond issuance (H74) | Increase in return on assets (ROA) (G32) |
| Green bond issuance (H74) | Increase in return on equity (ROE) (G32) |
| Green bond issuance (H74) | Reduction in CO2 emissions (H23) |
| Green bond issuance (H74) | Improvement in environmental ratings (Q56) |
| Announcement of green bond issues (G12) | Positive stock market response (G10) |
| Certified green bond announcements (Q48) | Positive stock market response (G10) |