Measuring the Greenness of Green Bonds

By Gianfranco Gianfrate, Research Director, EDHEC-Risk Climate Impact Institute, Professor of Finance, EDHEC Business School

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This article by Gianfranco Gianfrate, Research Director at EDHEC-Risk Climate, has been originally published in the January/February newsletter of the Institute. To subscribe to this complimentary newsletter, please contact: [email protected].


EDHEC Business School Professor Gianfrate has pioneered academic research into the application of internal carbon pricing

Green bonds are a relatively new type of bond with the distinguishing feature that proceeds are used to finance environmentally friendly projects, primarily related to climate change mitigation and adaptation initiatives. The first corporate green bond was issued in 2013 by a French electricity firm to fund a technologically advanced climate-friendly project. Since then, public attention to environmental, social, and governance (ESG) issues has reached unprecedented levels and green bond issuances have skyrocketed reaching $2.5trillion globally in January 2023 according to the World Bank. With the increase in the size of the green bonds market, the complexity of such financial instruments has also risen. For example, a growing number of bonds is classified according to the expected environmental impact of the financed projects; the degree of greenness of the bond is then labelled using “shades of green” scores: the stronger the impact, the “darker” the green bond. Usually, such greenness assessment of the bond proceeds is provided by external independent agencies.

In a recent study[1] we investigated the informative content of Second Party Opinions (SPOs) issued by external reviewers by putting together the largest global sample of corporate green bonds to date.  We manually collect information from all providers of SPOs and gather a sample of almost 1,300 green bonds with SPOs from all the main green rating providers. After filtering for characteristics to match green and non-green bonds, our final sample is composed of 336 corporate green bonds with SPOs and measurable green premium.

We first explored whether the shade of green matters in the market pricing of bonds depending on the presence of a credit rating. In contrast with previous studies, we find that when credit ratings are accounted for, the market does not price the shade of traded green bonds. However, when the bond issues are not rated - and, therefore, the information asymmetry is higher - SPOs appear to provide investors with further information that is relevant to the market. In absence of ratings, the greenium is economically and statistically significantly related to the shades of green.

We also explored whether the market relevance of the shades of green changes as a response to stricter green investment regulations. We specifically study the greenium response to the adoption of the “EU Taxonomy” in June 2021, a classification system for sustainable economic activities developed by the European Union with far reaching implications for the global responsible investment industry. Our findings show that following the adoption of the taxonomy, the greenium differential across different bond shades widens. These results support the view that stricter regulation of green investments fosters the demand for the bonds with the best climate credentials as recorded by SPOs.

Finally, we investigate whether the ownership of dark-green bonds differs from that of otherwise similar green or brown bonds across different investors. We are specifically interested in the role of investors who have signed onto UNPRI, because such investors commit to integrate climate concerns in their investment decisions and the UNPRI is the largest ESG initiative in the asset-management industry to date. We find that on average, top 20 owners hold 24.7% of bonds outstanding. UNPRI investors hold a larger average stake (14.5%) thank other investors (10.2%), probably because UNPRI investors are also larger in size. When we separate the ownership of green bonds from that of conventional (brown) bonds, we see that the difference in ownership between UNPRI and other investors enlarges. UNPRI investors own 16.0% of all green bonds compared to 13.3% of conventional bonds, while other investors hold about the same amount of bonds (10%) for both categories. The data show that UNPRI investors take larger stake of green bonds, and the ownership of green bonds is more concentrated amongst UNPRI investor than amongst other investors.

When we analyse the data within green bonds, we find that UNPRI investors hold substantially more green bonds (19.5%) than other investors (9.46%) when the bonds do not have a credit rating. On the contrary, both types of investors hold about the same stake (10%) of green bonds with credit rating. Therefore, the decoupling in ownership between UNPRI investors and other owners seem to happen particularly when green bonds are not financially rated.

We ran an additional analysis about ownership of green bonds, in order to verify if UNPRI investors have a preference for darker-green bonds. Specifically, we test if the difference in the mean ownership of UNPRI investors and other investors exists and is statistically significant across the three shades of greenness and depends on the existence of the bond credit rating.

Overall, we find that across the three shades of greenness there is a clear preference of UNPRI investors for darker-green bonds, but only when the bonds are not financially rated. For example, UNPRI investors hold on average 10.24 percentage points larger stake of dark-green bonds, compared to other (non-UNPRI) investors. Interestingly, there is no statistically significant difference between the ownership of UNPRI and other investors for light-green bonds, irrespective of the existence of a credit rating for these bonds. Overall, we find strong and new evidence that investors committed to integrate sustainability in their portfolio decisions own relatively more dark-green bonds in ways that were economically and statistically significant. Our analysis reveals responsible investors’ strong preference for dark-green bonds, while the lighter-green bonds appear to be treated like non-green bonds as far as ownership is concerned. This preference appears when the green bonds are not financially rated.

In the past decade, green bonds have become increasingly appealing as an asset class to investors. Our findings have several policy implications for this growing segment of the market. Independent external reviews can help reduce the information asymmetry between green bond issuers and investors; thus, better regulatory standard and frameworks should be encouraged. In particular, the shade-of-green approach could offer a more granular assessment of the environmental quality of the projects financed with green fixed-income securities, particularly so for issues lacking a credit rating. Policymakers and financial regulators should support the homogenisation, comparability, and independence of the assessment criteria adopted by green bonds’ external reviewers.



[1] Marco Ghitti, Gianfranco Gianfrate, Florencio Lopez-de-Silanes, Marco Spinelli, What’s in a shade? The market relevance of green bonds’ external reviews, The British Accounting Review, 2023,