Title: (In)-credibly green: Which bonds trade at a green bond premium?
Authors: Carmelo Latino - Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice (Germany) [presenting]
Julia Kapraun - Goethe University Frankfurt (Germany)
Christopher Scheins - Goethe University Frankfurt (Germany)
Christian Schlag - Goethe University (Germany)
Abstract: A theoretical rationale is provided for the non-existence of a Green premium by incorporating the role of trust in a model, where households have preferences for sustainable assets but do not receive any non-pecuniary utility from investing in Green bonds as soon as they do not trust the Green label. We further consider a setting where Green bonds have a real environmental impact and thereby reduce households' disutility from negative externalities. Also, the reduction in disutility happens only, if households trust in the implementation of the corresponding green project and if they can correctly assess the information on the environmental impact. To test our theoretically derived hypotheses empirically, we analyze a global sample of 1,500 Green bonds with respect to their pricing and find, on average, no significant premium on primary and secondary markets. Investors, thus, do not blindly trust all Green labels and are willing to accept lower yields only for certain types of bonds, namely those, that are perceived to be ``Green-credible'', either through a third-party certification of the Green label, or a listing of the bond on a dedicated Green exchange with tight listing requirements.