The effect of pro-environmental preferences on bond prices: Evidence from green bonds

By Olivier David Zerbib. Journal of Banking & Finance, 2019

1,053 citations recorded by the source corpus.

We use green bonds as an instrument to identify the effect of non-pecuniary motives, specifically pro-environmental preferences, on bond market prices. We perform a matching method, followed by a two-step regression procedure, to estimate the yield differential between a green bond and a counterfactual conventional bond from July 2013 to December 2017. The results suggest a small negative premium: the yield of a green bond is lower than that of a conventional bond. On average, the premium is -2 basis points for the entire sample and for euro and USD bonds separately. We show that this negative premium is more pronounced for financial and low-rated bonds. The results emphasize the low impact of investors’ pro-environmental preferences on bond prices, which does not represent, at this stage, a disincentive for investors to support the expansion of the green bond market.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/6e2665c4211dfaeab2915f3108db618e8b0275f5

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Citations in the corpus

Green Bonds, Corporate Performance, and Corporate Social Responsibility (2019, background): “Zerbib [16] found that investors attracted by the “green” sign do not play a significant role in promoting the development of green bonds.”
Dissecting Green Returns (2021, neutral): “For example, Baker et al. (2018) estimate a greenium of about −6 bps in a sample of over 2,000 U.S. municipal and corporate green bonds, whereas Zerbib (2019) estimates −2 bps in a sample of over 1,000 supranational, sub-sovereign and agency, municipal, corporate, financial, and covered green bonds.”
Climate Risk and Capital Structure (2019, neutral): “…increased after 2015, Monasterolo and De Angelis (2018) indicate that investors require higher risk premia for carbon-intensive industries’ equity, Zerbib (2019) finds negative yield premiums for green bonds after May 2016 and Seltzer, Starks and Zhu (2019) provide evidence of a causal relation…”
Analyzing the Characteristics of Green Bond Markets to Facilitate Green Finance in the Post-COVID-19 World (2021, methodology): “The coupon rate, issued size, and maturity are often used in studies tackling the existence of the green premium, as they are essential components for matching green and brown bonds [11,22] or as control variables in regression [8,23,24].”
Frequency connectedness and cross-quantile dependence between green bond and green equity markets (2021, background): “Zerbib (2019) shows that investors’ pro-environmental preferences have insignificant impact on bond prices and that green bonds earn on average two basis points less than similar conventional bonds.”
Green bonds for the Paris agreement and sustainable development goals (2019, methodology): “Zerbib (2019) employed a matching method to compare yield spreads between green and non-green bond yields as well as two phases of regressions on green bond premiums.”
Corporate green bonds (2019, neutral): “8 Prior work on the green bond premium ( Baker et al., 2018 ; Karpf and Mandel, 2017 ; Zerbib, 2019 ) found mixed results.”