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Green Bonds: Effectiveness and Implications for Public Policy

Caroline Flammer


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Environmental and Energy Policy and the Economy, Matthew Kotchen, James H. Stock, and Catherine Wolfram, editors
Conference held May 16, 2019
Forthcoming from University of Chicago Press
in NBER Book Series Environmental and Energy Policy and the Economy

This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the "green bond boom" witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies' financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies' environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.

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This chapter first appeared as NBER working paper w25950, Green Bonds: Effectiveness and Implications for Public Policy, Caroline Flammer
 
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