The U.S. Withdrawal from the Paris Agreement and Corporate Green Bond Reporting

Abstract

Green bonds have been emerging as a new financial instrument to help reach the goals of the Paris Climate Agreement, but these were set back by the unexpected announcement of the U.S. withdrawal from the Agreement in 2017. This study examines the effect of the U.S. withdrawal announcement, which we treat as an exogenous shock, on corporate green bond information disclosures. The literature on corporate environmental behaviors tends to focus on the diffusion and strengthening of the global norm of environmental information disclosure and transparency, but pays less attention to the possibility that institutions may decay. We argue that the U.S. withdrawal announcement disrupts the global norm and erodes its legitimacy. This in turn leads to a reduction of corporate green bond post-issuance reporting. Home-country government green bond reporting practices can play a normative role in shaping local corporate green bond issuers’ responses to the U.S. withdrawal announcement, and may attenuate the overall negative effects of the U.S. withdrawal on corporate green bond post-issuance reporting among firms located in countries where government green bonds have more post-issuance reporting. Using a proprietary cross-national dataset of both corporate and government green bonds, we find strong support for our hypotheses. This study contributes to the literature on corporate environmental behaviors and green bonds, and has practical implications for both managers and policymakers who face climate change and institutional turbulence.