Does Compliance to Green Bond Principles Matter? Global Evidence

Abstract

Keywords: Bond Market; Bid-ask spread; Green Bonds; Green Bond Principles; Compliance; Investor demand; Sustainability. We examine the effect of degree of compliance with the Green Bond Principles (GBP) on investor demand for such bonds, using cross-sectional data for all countries in the Green Bond market over the period 2007-2019. We find a significantly positive effect of higher compliance with the GBPs on investor demand, as measured by Bid-Ask-Spread and Yield-spread, after controlling for common bond-specific and macroeconomic variables. However, our results showed no evidence that macroeconomic factors influenced Green Bond investments. Moreover, we also find a positive effect on investor demand when a bond is issued by a government agency, even if the degree of compliance is low.

Keywords

• bond market
• bid-ask spread
• green bonds
• green bond principles
• compliance
• investor demand
• sustainability