Assessing investor preferences for environmental and sustainability bonds in Japan: A discrete choice experiment approach

This study examined how the focus of environmental and sustainability bonds (ESBs) influences investor preferences, particularly in relation to return rates and risk perceptions. A labeled discrete choice experiment was conducted on Japanese retail investors to examine their preference among the ESBs: green, sustainability, and blue bonds. The present study found that with low return rates, investors were indifferent among the three ESBs. However, higher return rates led investors to favor sustainability bonds. Furthermore, ESBs were less preferable to government bonds when the benchmark return rate was high, underscoring the need to set a relatively low benchmark return rate to attract investors to ESBs. Risk-averse investors were hesitant to choose ESBs when the return rates were low, emphasizing the importance of accurate risk information. The study highlighted the critical role of credit ratings, third-party certification, and transparent reporting for ESBs, suggesting that providing clear risk information is vital for expanding the ESB market.