The effect of certification on green bond returns

Büber, Gülşah
This thesis compares the daily secondary market total returns of green and brown bonds issued by the same issuers. Evidence suggests that investors have an incentive to invest in green bonds and this demand is reflected in green bond returns. When the return comparison is done based on whether the green bond is certified by the Climate Bonds Initiative (CBI), contrary to expectations, it is not possible to show any significant effect of this certification on the yield differential. The study also compares green and brown bond returns based on whether the bond’s issuer has an ESG rating. Results indicate that the presence of an issuer ESG rating increases both green and brown bond returns. However, ESG presence does not make any additional contribution to the greenium. Lastly, by breaking down ESG presence into ESG Scores and Environmental Pillar Scores, a within-sample comparison of green and brown bond returns is performed on a before- and after-pandemic basis. Findings show that following the start of the pandemic, green bond returns have increased, implying a stronger demand for green bonds. Also, higher ESG Scores and Environmental Pillar Scores significantly increased returns of green and brown bonds after the pandemic.


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Citation Formats
G. Büber, “The effect of certification on green bond returns,” M.B.A. - Master of Business Administration, Middle East Technical University, 2022.