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Shades of Green - A Study of the Impact of Green Bond External Reviews and their Influence on Bond Pricing Within the Secondary Green Bond Market

Schwenkschuster, Stefan LU and Schwartz, Fabian LU (2020) BUSN79 20201
Department of Business Administration
Abstract
This paper studies the impact of green bond external reviews and their influence on bond pricing within the secondary green bond market. Various types of external reviews are examined to paint a more accurate picture of the external review landscape. We find opposing results for corporate and municipal green bonds. While we could not identify significant external review premia for municipal green bonds, our findings, however, demonstrate that investors are willing to pay a premium for externally reviewed corporate green bonds. On average, this premium is -20 to -22 basis points. This finding becomes even more pronounced when considering various types of external reviews. Investors are willing to pay the highest premium for corporate green... (More)
This paper studies the impact of green bond external reviews and their influence on bond pricing within the secondary green bond market. Various types of external reviews are examined to paint a more accurate picture of the external review landscape. We find opposing results for corporate and municipal green bonds. While we could not identify significant external review premia for municipal green bonds, our findings, however, demonstrate that investors are willing to pay a premium for externally reviewed corporate green bonds. On average, this premium is -20 to -22 basis points. This finding becomes even more pronounced when considering various types of external reviews. Investors are willing to pay the highest premium for corporate green bonds that have been provided with a certification, closely followed by a scoring. On average, the premium is -32 basis points and -31 basis points respectively. Moreover, this paper shows that investors are willing to pay a premium in accordance with the granularity of the scoring. Overall, our results provide evidence that investors appear to see an external review as a credible signal to mitigate the risk of greenwashing and to determine a green bond’s actual greenness. (Less)
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author
Schwenkschuster, Stefan LU and Schwartz, Fabian LU
supervisor
organization
course
BUSN79 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
Green bonds, External review, Green bond pricing, Sustainable investment, Investor preferences
language
English
id
9015956
date added to LUP
2020-08-21 14:08:42
date last changed
2020-08-21 14:08:42
@misc{9015956,
  abstract     = {{This paper studies the impact of green bond external reviews and their influence on bond pricing within the secondary green bond market. Various types of external reviews are examined to paint a more accurate picture of the external review landscape. We find opposing results for corporate and municipal green bonds. While we could not identify significant external review premia for municipal green bonds, our findings, however, demonstrate that investors are willing to pay a premium for externally reviewed corporate green bonds. On average, this premium is -20 to -22 basis points. This finding becomes even more pronounced when considering various types of external reviews. Investors are willing to pay the highest premium for corporate green bonds that have been provided with a certification, closely followed by a scoring. On average, the premium is -32 basis points and -31 basis points respectively. Moreover, this paper shows that investors are willing to pay a premium in accordance with the granularity of the scoring. Overall, our results provide evidence that investors appear to see an external review as a credible signal to mitigate the risk of greenwashing and to determine a green bond’s actual greenness.}},
  author       = {{Schwenkschuster, Stefan and Schwartz, Fabian}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Shades of Green - A Study of the Impact of Green Bond External Reviews and their Influence on Bond Pricing Within the Secondary Green Bond Market}},
  year         = {{2020}},
}