The impact of green bonds on corporate environmental and financial performance

Abstract

Purpose

As investors' expectations shift toward corporate sustainability, many corporations have jumped on the bandwagon of being “green” by issuing green bonds. However, as a recent green financing tool, little attention has been paid on the value that green bonds actually deliver. This causes the problem of greenwashing, in which firms pretend to be environmentally responsible when in reality they are not. This study therefore aims to explore green bonds' impact on issuers' corporate environmental and financial performance.

Design/methodology/approach

The sample is collected from among the green bond and conventional bond issues between 2015 and 2019 issued by corporations from various countries. Using the propensity score matching (PSM) and then difference-in-difference (DiD) approaches, two sub-groups (green bond and conventional bond issuers) were generated for comparison. Changes in environmental and financial performance over time between the sub-groups are then examined.

Findings

The overall results show that green bonds are effective in improving environmental performance, but only when they are certified by third parties. Additionally, green bonds do not have an impact on financial performance. The findings imply that green bonds' dependency on external certification may be a consequence of an underdeveloped green bond market, where weak governance still dominates the green bond market. Because of this, corporations tend to take advantage of green finance's growing popularity, causing the greenwashing problem.

Originality/value

Green bonds are an extremely new area of research. Few research studies focus on the effectiveness of green bonds in impacting corporate financial and environmental performance. Therefore, this study strives to fill this research gap. It sheds light on the effectiveness of green bonds in supporting the development of green projects and provides a reference point for decision-making in strengthening transparency and accountability in environmental disclosure and helps regulating authorities develop tighter regulatory controls.

Citation

Yeow, K.E. and Ng, S.-H. (2021), "The impact of green bonds on corporate environmental and financial performance", Managerial Finance, Vol. 47 No. 10, pp. 1486-1510. https://doi.org/10.1108/MF-09-2020-0481