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How do conventional, Islamic and green bonds idiosyncratically differ when it comes to their inherent nonlinear reliance on carbon emission future price? A novel approach to greenwashing detection

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Abstract

A new generation of heterogeneous financing tools is designed to support responsible firms to develop sustainable projects. Also, carbon pricing as the most convenient environmental factor could help eco-friendly assets by creating a more environmentally friendly environment while altering the cost competitiveness of various industries. This paper compared the intrinsic nonlinear associations of carbon emission future price and green bonds (consisting of rigorously screened and green-labeled), with conventional sovereign bonds (in two versions of emerging and developed) and Islamic bonds (including normal and high-quality types). Applying an Elman neural network evaluation to the pairwise connectedness of each bond and carbon market during the period of 12/31/2012 to 8/4/2023, we found that with the exception of emerging sovereign bonds which are tightly related to the carbon market, both green-labeled and extra-financial eligible green bonds have more robust innate nonlinear linkages with the carbon market than developed conventional sovereign bonds and both Islamic versions. Moreover, the results show that extra-financial screening is more effective than the green-labeling process for create a more trustworthy affiliation with the carbon future market. By analyzing the results, policymakers and regulators can develop new indicators to detect and track greenwashing possibilities in environmentally friendly assets.

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Data availability

The datasets used during the current study are available from the website and are available on request.

Notes

  1. For more information, see: https://www.bloomberg.com/news/articles/2023-07-27/sustainable-bond-issuance-to-hit-950-billion-in-2023-moody-s#:~:text=Sustainable%20Bond%20Issuance%20to%20Hit%20%24950%20Billion%20in%202023%2C%20Moody's%20Says&text=Global%20sustainable%20bond%20issuance%20in,according%20to%20Moody's%20Investors%20Service.

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Acknowledgements

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper. No funding was received for this work. The datasets used during the current study are available from the website and are available on request.

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  1. Faculty of Economics, Kharazmi University, No. 43, Mofatteh Ave, Tehran, 15719-14911, Iran

    Mahdi Ghaemi Asl

  2. Department of Trade and Finance, Faculty of Economics and Management, Czech University of Life Sciences, Prague, Czech Republic

    Umer Shahzad

  3. Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon

    Umer Shahzad

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  1. Mahdi Ghaemi Asl
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Ghaemi Asl, M., Shahzad, U. How do conventional, Islamic and green bonds idiosyncratically differ when it comes to their inherent nonlinear reliance on carbon emission future price? A novel approach to greenwashing detection. Environ Dev Sustain (2024). https://doi.org/10.1007/s10668-023-04351-1

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