Green Bonds: Effectiveness and Implications for Public Policy

Caroline Flammer

NBER Working Paper No. 25950
Issued in June 2019
NBER Program(s):Corporate Finance, Environment and Energy Economics

This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the “green bond boom” witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies’ financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies’ environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w25950

Published: Green Bonds: Effectiveness and Implications for Public Policy, Caroline Flammer. in Environmental and Energy Policy and the Economy, volume 1, Kotchen, Stock, and Wolfram. 2020