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Unveiling the Green Bond & Sustainability-linked Bond Mystique

Darlin, Julia LU ; Bengtsson, Ebba LU and Holmström, Lucas LU (2024) IBUH19 20241
Department of Business Administration
Abstract
Sustainable finance plays a crucial role in driving sustainable development forward, and as the market grows more accustomed to ESG measures and targets, novel debt instruments have been emerging as a result. Green bonds and sustainability-linked bonds are two financial instruments that play an important role in supporting sustainable development. In this study, these two bond types are examined to gain insights and knowledge about the underlying reasons for the significant preference for green bonds over sustainability-linked bonds in the market. In order to explore this market outcome, semi-structured interviews were conducted with four cases; issuers, underwriters, investors and second-party opinion providers from various established... (More)
Sustainable finance plays a crucial role in driving sustainable development forward, and as the market grows more accustomed to ESG measures and targets, novel debt instruments have been emerging as a result. Green bonds and sustainability-linked bonds are two financial instruments that play an important role in supporting sustainable development. In this study, these two bond types are examined to gain insights and knowledge about the underlying reasons for the significant preference for green bonds over sustainability-linked bonds in the market. In order to explore this market outcome, semi-structured interviews were conducted with four cases; issuers, underwriters, investors and second-party opinion providers from various established Swedish companies. Behavioral economics and signaling theory was used as theoretical lenses to further understand the perspectives of the participants, exploring the nuances of how different factors impact their preferences and behaviors in the market for sustainable finance.

The study's key findings suggest that market maturity, risk aversion, signaling incentives, cognitive biases, societal factors, bounded rationality as well as more standardized frameworks work in favor of green bonds in the market. However, the flexible nature of sustainability-linked bonds allow certain companies in hard-to-abate industries as well as companies lacking the assets and/or operations for green project investments, the opportunity to engage in the transition towards a more sustainable market. (Less)
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author
Darlin, Julia LU ; Bengtsson, Ebba LU and Holmström, Lucas LU
supervisor
organization
alternative title
A Dive into Market Dynamics and Investor Psyche
course
IBUH19 20241
year
type
M2 - Bachelor Degree
subject
keywords
Green bonds, Sustainability-linked bonds (SLBs), Sustainable Finance, Behavioral Economics, Prospect Theory, Signaling Theory, Transitioning
language
English
id
9159479
date added to LUP
2024-06-20 12:48:27
date last changed
2024-06-20 12:48:27
@misc{9159479,
  abstract     = {{Sustainable finance plays a crucial role in driving sustainable development forward, and as the market grows more accustomed to ESG measures and targets, novel debt instruments have been emerging as a result. Green bonds and sustainability-linked bonds are two financial instruments that play an important role in supporting sustainable development. In this study, these two bond types are examined to gain insights and knowledge about the underlying reasons for the significant preference for green bonds over sustainability-linked bonds in the market. In order to explore this market outcome, semi-structured interviews were conducted with four cases; issuers, underwriters, investors and second-party opinion providers from various established Swedish companies. Behavioral economics and signaling theory was used as theoretical lenses to further understand the perspectives of the participants, exploring the nuances of how different factors impact their preferences and behaviors in the market for sustainable finance. 

The study's key findings suggest that market maturity, risk aversion, signaling incentives, cognitive biases, societal factors, bounded rationality as well as more standardized frameworks work in favor of green bonds in the market. However, the flexible nature of sustainability-linked bonds allow certain companies in hard-to-abate industries as well as companies lacking the assets and/or operations for green project investments, the opportunity to engage in the transition towards a more sustainable market.}},
  author       = {{Darlin, Julia and Bengtsson, Ebba and Holmström, Lucas}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Unveiling the Green Bond & Sustainability-linked Bond Mystique}},
  year         = {{2024}},
}