This paper conducts the first comparative analysis of the financial performance of the certification and the green labelling for green bonds. Based on a unique dataset of 22 certified, 16 self-labelled and 7 unlabelled green bonds, the study contrasts the financial performance of the three green bond classes over the period 01/06/2016 to 13/07/2017. Over the full sample period, the labelled green bonds have significantly lower volatility than the unlabelled one, while there is no significant performance differences between the certified and self-labelled green bonds.
In terms of the relationship between the labelling and the price/yield changes, no significant evidence is detected throughout the given period. Consequently, this paper’s discovery concludes that the green labelling offers stakeholders the opportunity to reduce the volatility whereas the other effects on the price or yields are inconclusive.
Table of Contents
1. Introduction
1.1 Purpose
1.2 Research Questions and Hypothesis
1.3 Limitations of Scope
1.4 Outline of the Thesis
2. Literature Review
2.1 Green Bonds
2.2 Green Bonds Market
2.3 Green Bond Guidelines and Standards
2.3.1 The Green Bond Principles (GBP)
2.3.2 The Climate Bonds Standard (CBS)
2.4 Challenges
2.4.1 Lack of Supply of Green Bonds and Green Project
2.4.2 Lack of Aggregation Mechanisms for Green Bonds
2.4.3 Lack of Green Bonds Definition and Framework
2.4.4 Lack of Information and Market Knowledge
2.4.5 Lack of Clear Risk Profile of Green Investments
2.5 Introduction to Bond Theory
2.5.1 Term to Maturity
2.5.2 Principal and Coupon
2.5.3 Currency
2.5.4 Yield
2.5.5 Yield Spread
2.5.6 Pricing of Bonds
2.5.7 Yield to Maturity
2.5.8 Duration and Modified Duration
2.6 Previous Research
2.6.1 Quantitative Bond Studies
2.6.2 Greenwashing
2.6.3 Comparative Analyses
3. Data and Methodology
3.1 Research Objectives
3.2 Data Collection Method
3.3 Data Description
3.3.1 Data used to Test Volatility
3.3.2 Data used to Test Price and Yield to Maturity
3.4 Empirical Methods
3.4.1 Methodology for Hypothesis One: Test Volatility
3.4.2 Methodology for Hypothesis Two: Test Impacts of Being Higher Certification
4. Empirical Results and Discussion
4.1 Descriptive Statistics
4.2 Hypothesis One: Test Volatility
4.3 Hypothesis Two: Test Impacts of Being Higher Certification
4.3.1 Test on Price
4.3.2 Test on Yield
4.4 Robustness of Results
4.5 Discussion
4.5.1 Hypothesis One: Test Volatility
4.5.2 Hypothesis Two: Test Impacts of Being Higher Certification
5. Conclusion
5.1 Research Aims
5.2 Empirical Results
5.3 Future Research
Research Objectives & Key Themes
The primary aim of this dissertation is to quantify the extent to which key financial factors, specifically volatility, price, and yield to maturity, are affected by the labelling and certification of green bonds. By comparing these performance metrics across certified, self-labelled, and unlabelled green bond categories, the study seeks to verify the effectiveness of these labelling systems in the green investment market.
- Comparative financial performance analysis of different green bond categories.
- Evaluation of the impact of green labels on bond price and yield volatility.
- Investigation into the influence of certification standards (e.g., GBP) on investor risk perception.
- Assessment of the current state of greenwashing concerns and the need for standardized definitions.
- Empirical testing using a panel data approach for the period 2016-2017.
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2.4.1 Lack of Supply of Green Bonds and Green Project
Even though there is strong demand for green bonds from investors, the supply is still not enough to meet the demand. This is mainly because of the lack of green projects for finance or refinance, additionally, the lack of identified and well-organised bankable green projects. There are currently many small sizes of projects for green bonds, but it is hard to find the transparent project pipeline of large scaled green projects with positive environmental impacts. The current trend, focusing on small scale of green bonds, makes investors avoiding investments as they think green bonds have less liquidity than other assets (European Commission 2016).
Summary of Chapters
1. Introduction: Outlines the research purpose, key research questions regarding the financial performance of green bonds, and the thesis structure.
2. Literature Review: Provides background on green bonds, current market trends, existing standards, and theories regarding bond pricing and volatility.
3. Data and Methodology: Details the dataset construction, the classification of green bonds into three types, and the regression models used for testing hypotheses.
4. Empirical Results and Discussion: Presents the statistical findings from the regressions, analyzing volatility and price/yield impacts, followed by an interpretation of the results.
5. Conclusion: Summarizes the research aims, findings regarding volatility differences, and provides recommendations for future academic research in this field.
Key Terms
Green bonds, Green labelling, Labelled green bonds, Unlabelled green bonds, Certification of green bonds, Climate bonds, Green investment, Climate change, Financial performance, Volatility, Yield spread, Yield to maturity, Panel data, Regression analysis, Greenwashing
Frequently Asked Questions
What is the central focus of this dissertation?
The study focuses on evaluating the effectiveness of green bond labelling and certification by empirically analyzing whether these labels lead to distinct financial performance, particularly concerning bond volatility and price/yield changes.
What are the primary thematic fields covered?
The work covers green finance, the green bond market infrastructure, standard-setting bodies like the Climate Bonds Initiative, and quantitative bond performance metrics.
What is the main research question?
The study asks whether green labelling and certification significantly affect financial performance and if higher levels of certification translate into improved performance compared to lower-level or unlabelled bonds.
Which scientific methodology is utilized?
The research employs a quantitative panel data regression analysis, utilizing the Eviews statistical software to compare bond series across the specified labels.
What is covered in the main body of the work?
The body includes a comprehensive literature review on bond theory and market challenges, followed by a rigorous data collection process and the execution of specific regression models to test two central hypotheses.
What are the characterizing keywords of this study?
The core keywords include Green bonds, Green labelling, Volatility, Yield to maturity, and Climate change.
How does the certification level impact bond volatility?
The study found that labelled green bonds (whether certified or self-labelled) exhibit significantly lower volatility than unlabelled green bonds, suggesting that labelling contributes to risk reduction for investors.
Does higher-level certification improve price or yield performance?
The empirical results regarding price and yield changes were inconclusive; the study did not find significant statistical evidence that higher levels of certification lead to better performance in terms of price or yield to maturity within the observed timeframe.
- Quote paper
- Kyunghwa Jeon (Author), 2017, Green Bonds. Effectiveness of Green Labelling and Certification, Munich, GRIN Verlag, https://www.grin.com/document/951509
