The Financial Potential of Green Bonds: Comparing the Three Issuing Schemes

Abstract

The Japanese version of this paper can be found at https://ssrn.com/abstract=3172426.

For this research, I conduct a comparative analysis on the status of utilization and the financial product characteristics of each of the three green bond issuing schemes, the "Green Bond Principles", the "Climate Bonds Standard" and the "Green Bond Rating", that financial entities take advantage of when issuing green bonds. The results of the analysis show that among the Aaa/AAA rated green bonds issued from March 2016 to November 2017, the average spread of the green bonds in comparison with government bonds issued based on the Climate Bonds Standard is the tightest (18.4 bp). Regression analysis revealed that the Climate Bonds Standard (coefficient: -45.5) has the largest impact on spread reduction in euro-denominated green bonds. Meanwhile, in dollar-denominated green bonds, it is confirmed that the bond ratings has an impact on spread reduction (coefficient: -15.2).

Keywords: Green bonds, fixed income, spread, Paris Agreement, ESG investing, climate change

JEL Classification: Q5, M2