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Talk green to me: An Analysis of Green, Sustainability-Linked and Conventional Bonds in the U.S. Market

Wallén, Sara LU and Forsgren, Yasmine LU (2025) NEKH02 20251
Department of Economics
Abstract
In recent years, sustainability has become an increasingly important theme in financial markets, leading to the growth of green bonds and sustainability-linked bonds (SLBs). These instruments both fall under the umbrella of Environmental, Social and Governance (ESG) labeled bonds, though they differ in structure and how sustainability is integrated into the bond terms. It is clear that they have a sustainable purpose, but how they actually differ from conventional bonds in fundamental variables, like risk and return, remains unexplored. Earlier studies have shown mixed results. Some find evidence of improved performance or a so-called “greenium”. It occurs when a green bond has a lower yield or higher price than an otherwise identical... (More)
In recent years, sustainability has become an increasingly important theme in financial markets, leading to the growth of green bonds and sustainability-linked bonds (SLBs). These instruments both fall under the umbrella of Environmental, Social and Governance (ESG) labeled bonds, though they differ in structure and how sustainability is integrated into the bond terms. It is clear that they have a sustainable purpose, but how they actually differ from conventional bonds in fundamental variables, like risk and return, remains unexplored. Earlier studies have shown mixed results. Some find evidence of improved performance or a so-called “greenium”. It occurs when a green bond has a lower yield or higher price than an otherwise identical conventional bond, reflecting investors preference for supporting environmentally friendly projects over non-green alternatives. Others report no significant differences or raise concerns about credibility.

This thesis investigates the financial characteristics of 210 U.S. corporate bonds that are either green, sustainability-linked or conventional. The results show no significant return differences, but SLBs exhibit higher liquidity risk and both green and SLBs have significantly higher Option-Adjusted-Spread (OAS). ESG scores and SLB coupon penalty structures show no meaningful pricing impact. (Less)
Please use this url to cite or link to this publication:
author
Wallén, Sara LU and Forsgren, Yasmine LU
supervisor
organization
course
NEKH02 20251
year
type
M2 - Bachelor Degree
subject
keywords
Conventional bonds, Green bonds, SLBs, Risk, Return
language
English
id
9198153
date added to LUP
2025-09-12 09:16:37
date last changed
2025-09-12 09:16:37
@misc{9198153,
  abstract     = {{In recent years, sustainability has become an increasingly important theme in financial markets, leading to the growth of green bonds and sustainability-linked bonds (SLBs). These instruments both fall under the umbrella of Environmental, Social and Governance (ESG) labeled bonds, though they differ in structure and how sustainability is integrated into the bond terms. It is clear that they have a sustainable purpose, but how they actually differ from conventional bonds in fundamental variables, like risk and return, remains unexplored. Earlier studies have shown mixed results. Some find evidence of improved performance or a so-called “greenium”. It occurs when a green bond has a lower yield or higher price than an otherwise identical conventional bond, reflecting investors preference for supporting environmentally friendly projects over non-green alternatives. Others report no significant differences or raise concerns about credibility. 

This thesis investigates the financial characteristics of 210 U.S. corporate bonds that are either green, sustainability-linked or conventional. The results show no significant return differences, but SLBs exhibit higher liquidity risk and both green and SLBs have significantly higher Option-Adjusted-Spread (OAS). ESG scores and SLB coupon penalty structures show no meaningful pricing impact.}},
  author       = {{Wallén, Sara and Forsgren, Yasmine}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Talk green to me: An Analysis of Green, Sustainability-Linked and Conventional Bonds in the U.S. Market}},
  year         = {{2025}},
}