Financing environmentally-sustainable projects with green bonds

A structural model for green bonds is developed to explain the formation and dynamics of green bond prices and to address the issue of the so-called 'greenium', that is, the difference between the yields on a conventional bond and a green bond with the same characteristics. We provide answ...

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Bibliographic Details
Published in:Environment and development economics 2019-12, Vol.24 (6), p.608-623
Main Authors: Agliardi, Elettra, Agliardi, Rossella
Format: Article
Language:English
Subjects:
Alternative energy sources
Bond issues
Bond markets
Bond ratings
Bonding
Bonds
Capital formation
Carbon
Climate change
Councils
Developing countries
Electricity
Emissions
Environmental attitudes
Environmental perception
Financing
Fines & penalties
Global warming
Green bonds
Hydroelectric power
Incentives
Industrial plant emissions
International finance
Investments
Investors
LDCs
Public finance
Renewable resources
RESEARCH ARTICLE
Subsidies
Sustainability
Taxation
Wind power
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Summary:A structural model for green bonds is developed to explain the formation and dynamics of green bond prices and to address the issue of the so-called 'greenium', that is, the difference between the yields on a conventional bond and a green bond with the same characteristics. We provide answers to the following questions: What are the determinants of the green bond value? Do green bonds enhance the credit quality of the issuer? Are green bonds a relatively cheap tool to fund sustainable investments? We also study the effect of investors' environmental concern on portfolio allocation. Our results have direct policy implications and suggest that an improvement in credit quality could ultimately lead to a lower cost of capital for green bond issuers and that governmental tax-based incentives and an increase in investors' green awareness play a significant role in scaling up the green bonds market.
ISSN:1355-770X
1469-4395
DOI:10.1017/S1355770X19000020