Rethinking the Value and Emission Implications of Green Bonds

Our analysis of green bonds issued between 2013 and 2022 reveals a distinctive shareholder preference for such assets, particularly among financial institutions. In the secondary market, the green bonds issued by financial firms’ trade at a “greenium” of 8.2 basis points compared with matched samples, which is attributed potentially to the financial firms’ efforts in channeling funds to green loans. Past work documenting a positive stock price reaction to the issuance of green bonds is isolated to financial firms and to specific issuers. Issuers of green bonds with higher emissions before the green bond issue report an insignificant reduction in such emissions after issuance. Our analysis of the sustainable lending practices of these gatekeepers reveals that the greenium earned in the green bond market does not translate to the green loan market. Furthermore, the borrowers’ performance remains unchanged in the short term, indicating a lack of due diligence by the gatekeepers. This study underscores the complex relationship between financial markets and environmental stewardship. This paper was accepted by Ranjani Krishnan, accounting. Funding: The authors acknowledge financial assistance from Columbia Business School, Fordham University, Harvard University (Program on Corporate Governance), and MIT Sloan (Sustainability Initiative). Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00961 .