Green Bond Financing and Corporate Environmental Performance

Abstract

We investigate whether a green bond issue constitutes a reliable indicator to capital market participants that the issuing firm will be able to improve its environmental footprint in the near future. Based on a propensity-score-matched sample of green bond and conventional bond issues within the EU, we compare firms’ environmental performances with respect to three measures, namely greenhouse gas emissions, energy intensity, and water intensity. We find that there is no evidence of green bond issues being a good indicator of a firm’s ability to improve its environmental performance in the near term. Overall, while we observe certain improvements in environmental performance in the years following corporate bond issuances in general, green issuers and conventional issuers do not differ significantly with respect to these changes. Hence, we conclude that a green bond issue in itself is not a useful indicator of a firm’s commitment to a more sustainable business model.