Work detail

Financing Climate Action: The Pricing of Green Bonds and Its Determinants

Author: Mgr. Anna Kortusová
Year: 2020 - summer
Leaders: prof. Ing. Evžen Kočenda M.A., Ph.D., DSc.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 117
Awards and prizes: Nomination Deloitte Outstanding Thesis Award.
Abstract: Green bonds present a promising tool enabling investors in fixed-income markets to finance environmental projects. Yet, the pricing of green bonds with
respect to conventional bonds remains an open question. This thesis investigates the existence of a yield differential between green and equivalent
conventional bonds in the secondary market. By matching green bonds with
synthetic conventional bonds and performing a fixed effects panel regression
of the yield spread, we find evidence of a small negative premium associated with green bonds (“green premium”): as a result of high demand from
value-seeking investors, the yield of green bonds is on average 1.12 basis
points lower than that of their conventional counterparts. The variation in
the magnitude of the green premium with bond characteristics is further
examined through a cross-sectional regression. We show that external verification of the bond’s green credentials and assurance on its post-issuance
allocation report significantly increase the estimated green premium. Finally,
the green bond’s yield seems to decrease in case proceeds are used to finance
new projects, while refinancing existing projects results in an increase in the
bond’s yield. Our findings provide valuable insights into the field of green
bond pricing. While the average size of the estimated green premium does
not present a discouragement for mainstream investors to engage in green
bonds, the areas of green credibility and additionality need to be addressed
in order to enhance investors’ trust in the innovative instrument.




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