The difference between green finance that works and green finance that doesn’t work seems to be commitment: Using a Difference-in-Differences model analyzing 2013-2023 bond data, researchers found no significant correlation between green bond issuance and CO2 emissions after net-zero policies were adopted. That’s the disappointing part. On the upside: companies issuing only green bonds showed higher ESG ratings, lower CO2 emissions, and lower financing costs, achieving substantial environmental benefits and economic advantages. Meanwhile, entities issuing both conventional and green bonds showed no environmental benefits, raising concerns about potential greenwashing.
Those issuing only green bonds tend to have higher ESG ratings, lower CO2 emissions, and lower financing costs.
This could be called the commitment premium: Companies that go all-in on green finance see real results – both environmental and financial. Those trying to have it both ways? They’re essentially paying green bond premiums for conventional bond performance while fooling nobody about their environmental impact. What are the implications for investors? We should favor pure-play green issuers, and regulators need standards that discourage this mixed-portfolio greenwashing. The study suggests current carbon reduction policies haven’t created sufficient pressure on bond issuers, but perhaps the market is already creating its own incentives.