Journal of Asset Management

, Volume 19, Issue 6, pp 371–383 | Cite as

Are green bonds priced differently from conventional bonds?

  • Britta Hachenberg
  • Dirk Schiereck
Original Article


The young growing market for green bonds offers investors the opportunity to take an explicit focus on climate protecting investment projects. However, it is an open question whether this new asset class is also offering attractive risk–return profiles compared to conventional (non-green) bonds. To address this question, we match daily i-spreads of green-labeled and similar non-green-labeled bonds and look at their pricing differentials. We find that rating classes AA–BBB of green bonds as well as the full sample trade marginally tighter for the respective period compared to non-green bonds of the same issuers. Furthermore, financial and corporate green bonds trade tighter than their comparable non-green bonds, and government-related bonds on the other hand trade marginally wider. Issue size, maturity and currency do not have a significant influence on differences in pricing but industry and ESG rating.


Green bond ESG criteria Corporate financial performance Credit rating 



We thank Florian Kiesel, Sacha Kolaric and participants of the Green Summit conference in Liechtenstein for valuable comments.

Supplementary material

41260_2018_88_MOESM1_ESM.docx (21 kb)
Supplementary material 1 (DOCX 20 kb)


  1. Amato, J., and E. Remolona. 2003. The credit spread puzzle. Basel: BIS Quarterly Review.Google Scholar
  2. Bao, J., Pan, J., and Wang, J. (2011) The illiquidity of corporate bonds. The Journal of Finance (LXVI No 3), pp. 911–945. Scholar
  3. Bessembinder, H., W. Maxwell, and K. Venkataraman. 2006. Market transparency, liquidity externalities, and institutional trading costs in corporate bonds. Journal of Financial Economics 82 (2): 251–288. Scholar
  4. Bhojraj, S., and P. Sengupta. 2003. Effect of Corporate Governance on Bond Ratings and Yields: The Role of Institutional Investors and Outside Directors. The Journal of Business 76 (3): 455–475. Scholar
  5. Bloomberg. Investors are willing to pay a ‘green’ premium. Bloomberg New Energy Finance Report 2017.Google Scholar
  6. Boulle, B., Frandon-Martinez, C. and Pitt-Watson, J. (2016) Bonds and climate change. The state of the market in 2016. Climate Bonds Initiative.Google Scholar
  7. Ceci, M. (2016) Green, Social and Sustainability Bonds. J.P.Morgan.Google Scholar
  8. Chava, S. 2014. Environmental externalities and cost of capital. Management Science 60 (9): 2223–2247. Scholar
  9. Climate Bonds Initiative. 2017. Green bonds highlights 2016.Google Scholar
  10. Collin-Dufresne, P., R. Goldstein, and M. Spencer. 2001. The determinants of credit spread changes. The Journal of Finance 56 (6): 2177–2207.CrossRefGoogle Scholar
  11. Derwall, J., and K. Koedijk. 2009. Socially responsible fixed-income funds. Journal of Business Finance & Accounting 36 (1–2): 210–229. Scholar
  12. Driessen, J. 2003. Is default event risk priced in corporate bonds? Mimeo, University of Amsterdam.Google Scholar
  13. Duffee, G. 1998. The relation between treasury yields and corporate bond yield spreads. The Journal of Finance 53 (6): 2225–2241. Scholar
  14. Edwards, A., L. Harris, and M. Piwowar. 2007. Corporate bond market transaction costs and transparency. The Journal of Finance 62 (3): 1421–1451. Scholar
  15. El Ghoul, S., O. Guedhami, C. Kwok, and Dev R. Mishra. 2011. Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance 35 (9): 2388–2406. Scholar
  16. Friede, G., T. Busch, and A. Bassen. 2015. ESG and financial performance: aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment 5 (4): 210–233. Scholar
  17. Friewald, N., R. Jankowitsch, and M. Subrahmanyam. 2012. Illiquidity or credit deterioration. A study of liquidity in the US corporate bond market during financial crises. Journal of Financial Economics 105 (1): 18–36. Scholar
  18. Frooman, J., C. Zietsma and B. McKnight (2008) There is no good reason not to be good. Administrative Science Association of Canada (ASAC), Halifax, Nova Scotia.Google Scholar
  19. Global Sustainable Investment Alliance. 2017. 2016 Global sustainable investment review.Google Scholar
  20. Gordon, R., and J. Viscione. 1984. The impact of seniority and security covenants on bond yields: A note. The Journal of Finance 39 (5): 1597–1602.CrossRefGoogle Scholar
  21. Goss, A., and G. Roberts. 2011. The impact of corporate social responsibility on the cost of bank loans. Journal of Banking & Finance 35 (7): 1794–1810. Scholar
  22. Hull, J., M. Predescu, and A. White. 2004. The relationship between credit default swap spreads, bond yields, and credit rating announcements. Journal of Banking & Finance 28 (11): 2789–2811. Scholar
  23. ICMA International Capital Markets Association. 2016. Green bond principles, 2016. Voluntary Process Guidelines for Issuing Green Bonds.Google Scholar
  24. KfW. 2016. Invest in the everlasting. Green Bonds—Made by KfW.Google Scholar
  25. Karpf, A., and Mandel A. 2017. Does it pay to be green? Working paper, Université Paris.Google Scholar
  26. Kiesel, F., and D. Schiereck. 2015. The effect of rating announcements on firms in bank-based systems. The Journal of Fixed Income 25 (4): 84–95.CrossRefGoogle Scholar
  27. Krimphoff, J. et al. 2016. Green bonds must keep the green promise! A call for collective action towards effective and credible standards for the green bond market. WWF. Paris.Google Scholar
  28. Mann, S., and F. Fabozzi. 2013. Relative value analysis of fixed-income products. In Encyclopedia of financial models, vol. 1, ed. Frank J. Fabozzi. Hoboken, N.J: Wiley.Google Scholar
  29. Mann, S., and E. Powers. 2003. Indexing a bond’s call price. An analysis of make-whole call provisions. Journal of Corporate Finance 9 (5): 535–554. Scholar
  30. Maul, D., and D. Schiereck. 2017. The bond event study methodology since 1974. Review of Quantitative Finance and Accounting 48 (3): 749–787. Scholar
  31. Menz, K. 2010. corporate social responsibility. is it rewarded by the corporate bond market? A critical note. Journal of Business Ethics 96 (1): 117–134. Scholar
  32. Nayar, N., and D. Stock. 2008. Make-whole call provisions. A case of “much ado about nothing? Journal of Corporate Finance 14 (4): 387–404. Scholar
  33. Norden, L., and M. Weber. 2004. Informational efficiency of credit default swap and stock markets. The impact of credit rating announcements. Journal of Banking & Finance 28 (11): 2813–2843. Scholar
  34. Oikonomou, I., C. Brooks, and S. Pavelin (2011) The effects of corporate social performance on the cost of corporate debt and credit ratings. ICMA Centre Discussion Papers in Finance DP2011-19.Google Scholar
  35. Polbennikov, S., A. Desclée, L. Dynkin, and A. Maitra. 2016. ESG ratings and performance of corporate bonds. The Journal of Fixed Income 26 (1): 21–41. Scholar
  36. Preclaw, R., and A. Bakshi. 2015. The cost of being green. New York: Barclays Research.Google Scholar
  37. Principles for Responsible Investment. 2016. Principles for responsible investment. An investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact.Google Scholar
  38. Renneboog, L., J. Ter Horst, and C. Zhang. 2008. Socially responsible investments. Institutional aspects, performance, and investor behavior. Journal of Banking & Finance 32 (9): 1723–1742. Scholar
  39. Ridley, M., W. Chan, and C. Edwards. 2016. Global green bonds. The Big Long. HSBC Global Research.Google Scholar
  40. Ridley, M. and C. Edwards. 2017. Global green bonds. Outlook for 2017: The end of the beginning. HSBC Global Research.Google Scholar
  41. Stellner, C., C. Klein, and B. Zwergel. 2015. Corporate social responsibility and Eurozone corporate bonds. The moderating role of country sustainability. Journal of Banking & Finance 59: 538–549. Scholar
  42. Warga, A. 1991. Corporate bond price discrepancies in the dealer and exchange markets. The Journal of Fixed Income 1 (3): 7–16. Scholar
  43. Zerbib, O. (2017) The green bond premium. Working Paper, Tilburg School of Economics and Management.Google Scholar
  44. Zhu, H. 2006. An Empirical Comparison of Credit Spreads between the Bond Market and the Credit Default Swap Market. Journal of Financial Services Research 29 (3): 211–235. Scholar

Copyright information

© Springer Nature Limited 2018

Authors and Affiliations

  1. 1.Technische Universitaet DarmstadtDarmstadtGermany

Personalised recommendations