Research and publications
What’s in a shade? The market relevance of green bonds’ external reviews
The British Accounting Review, published online 28 October 2023.
With the growth of green bonds as an asset cla ...
Author(s):
Marco Ghitti, Gianfranco Gianfrate, Florencio López de Silanes, Marco Spinelli
Summary:
The British Accounting Review, published online 28 October 2023.
With the growth of green bonds as an asset class, the certification of the actual climate footprint of projects financed with these bonds is gaining momentum among investors and policymakers.
The authors investigate the informative content of Second Party Opinions (SPOs) issued by external reviewers to assess the quality of green bonds collecting a global sample of over 1200 corporate green bonds and matching results for 336 of those.
The main contribution of the article is to show that the market assigns a premium to the bonds with the best SPOs' valuation - namely, the “dark-” and “medium-” green bonds. However, in presence of a formal credit rating, the external reviews do not appear to incorporate distinctive information priced by the market. Using a difference-in-difference approach, we find that stricter green investment regulations like the adoption of the “EU Taxonomy” produce a “fly-to-quality” effect that widens the spread between dark and lighter green bonds' returns.
Responsible investors do appear to rely on the judgement of external reviewers when a formal credit rating is absent, and they have significantly higher stakes in the greener bonds.
Overall, their results indicate that external reviews can reduce the information asymmetry between issuers and investors when a credit rating is lacking, but they are not informative for rated green bonds.
Keywords: Green bond, Greenium, Shades of green, Credit Rating, Green bond ownership, Climate finance, Climate risk, Responsible investment
| Type : | Academic Publication |
|---|---|
| Date : | 03/11/2023 |
| Editor : | ELSEVIER |
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