Green Bonds: New Label, Same Projects
“Green” bonds are so labeled by the issuer because the proceeds are directed to an environmentally friendly project. Green bonds are often considered a leading capital market response to environmental challenges; over $3 trillion have been issued worldwide since the birth of the label less than twenty years ago. Prolific issuers include U.S. and international […]
Pauline Lam is a Visiting Scholar at New York University Stern School of Business, and Jeffrey Wurgler is the Nomura Professor of Finance at New York University Stern School of Business. This post is based on their recent paper.
“Green” bonds are so labeled by the issuer because the proceeds are directed to an environmentally friendly project. Green bonds are often considered a leading capital market response to environmental challenges; over $3 trillion have been issued worldwide since the birth of the label less than twenty years ago. Prolific issuers include U.S. and international municipalities and corporations, sovereigns, and supranational entities.
Despite the market interest in the concept of green bonds, there has been little or no systematic analysis of the fundamental “real” proposition: that in buying an issuer’s green bond, as opposed to its ordinary bond, an investor is indeed contributing to some novel good, funding an activity with a sufficiently distinct environmental aspect as to merit buying the bond with the distinct label. In fact, rhetoric regarding in green bond market often takes this proposition for granted. For example, consider Apple, Inc.’s discussion of their green bond program:
