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Are green bonds priced differently from conventional bonds?
Revised: 27 June 2018 / Published online: 6 August 2018
Springer Nature Limited 2018
Abstract The young growing market for green bonds
offers investors the opportunity to take an explicit focus on
climate protecting investment projects. However, it is an
open question whether this new asset class is also offering
attractive risk–return proﬁles compared to conventional
(non-green) bonds. To address this question, we match
daily i-spreads of green-labeled and similar non-green-la-
beled bonds and look at their pricing differentials. We ﬁnd
that rating classes AA–BBB of green bonds as well as the
full sample trade marginally tighter for the respective
period compared to non-green bonds of the same issuers.
Furthermore, ﬁnancial and corporate green bonds trade
tighter than their comparable non-green bonds, and gov-
ernment-related bonds on the other hand trade marginally
wider. Issue size, maturity and currency do not have a
signiﬁcant inﬂuence on differences in pricing but industry
and ESG rating.
Keywords Green bond ESG criteria Corporate ﬁnancial
performance Credit rating
Sustainable and responsible investments (SRI) are esti-
mated to have reached 22.89 trillion U.S. dollars globally
in 2016 (Global Sustainable Investment Alliance 2017). In
Canada and Europe,
which represent two of the three
largest markets, bonds account for 64.4% of SRI. Further
indicators show that this large market will grow on an
accelerating pace within the next years. A total of 409
investors representing more than 24 trillion U.S. dollars in
assets signed a statement that emphasizes the need for
climate resilient investments.
Likewise, more than 1,500
investors representing around 60 trillion U.S. dollars in
assets under management have signed the principles for
responsible investment (Principles for Responsible Invest-
ment 2016). While the SRI market is globally expanding
academic research is following. More than 2000 studies
have been published since the 1970s about environmental,
social and governance (ESG) criteria (Friede et al. 2015).
But contrary to the investment shares, the vast majority of
empirical studies has been focused on equity-linked rela-
tions, with only a small portion looking into ﬁxed income
or real estate.
In line with the overall limited research on ﬁxed-income
SRI, there is also hardly empirical evidence for a debt
instrument that is attracting a fast growing interest of
institutional asset managers while it was only recently
developed: the instrument helps to invest according to the
principles for responsible investment and is named green
Electronic supplementary material The online version of this
article (https://doi.org/10.1057/s41260-018-0088-5) contains supple-
mentary material, which is available to authorized users.
Technische Universitaet Darmstadt, Darmstadt, Germany
Other regions apart from Canada and Europe did not collect data on
asset allocation. Canada and Europe together represent more than
57% of sustainable assets (Global Sustainable Investment Alliance
J Asset Manag (2018) 19:371–383