Green bonds: lower returns of higher responsibility?

Abstract

Due to recent management failures with environmental impact, e.g. BP in the Caribbean see, and in light of recent climate changes, investors begin to turn their attention towards environmentally sustainable and socially responsible investments. One special financial instrument in this realm is the ‘green bond’, which investments are financing climate change solutions. In this paper, I investigate whether green bonds nowadays are interesting not only for ethical investors but also for the ordinary investor. Hence, using time-series and panel data analyses in a multi-index model framework, I compare the performance of green bond indices and their mainstream counterparts. While recent studies find some evidence that green bonds underperform, I find no evidence for a difference to mainstream counterparts in a time period between 2008-2016. Implications and alternative analysis methods are discussed.