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The pricing of green bonds: Are financial institutions special?

Author

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  • Fatica, Serena
  • Panzica, Roberto
  • Rancan, Michela

Abstract

The financial system plays a major role in the transition to a low-carbon economy. We shed light on this analyzing recent developments in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium for green bonds issued by supranational institutions and corporates but no yield differences in case of issuances by financial institutions. We also document an effect for external review and repeated access to the green bond market. Second, we show that banks that issue green bonds reduce lending towards carbon-intensive sectors, but limited to the loan amounts granted in the role of lead bank in the deal. This mixed evidence about lending suggests that, at the time of issuance, investors may not be able to identify a clear link between the green bond issued by a financial institution and a specific green investment project, which would explain the absence of a green premium for financial issuers.

Suggested Citation

  • Fatica, Serena & Panzica, Roberto & Rancan, Michela, 2021. "The pricing of green bonds: Are financial institutions special?," Journal of Financial Stability, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finsta:v:54:y:2021:i:c:s1572308921000334
    DOI: 10.1016/j.jfs.2021.100873
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    More about this item

    Keywords

    Sustainable finance; Climate change; Green bonds; Financial institution; Bank loans;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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