“The Green Bonding Hypothesis: How do Green Bonds Enhance the Credibility of Environmental Commitments?” by Ms. Shirley Simiao Lu
Ms. Shirley Simiao Lu
Ph.D. Candidate in Accounting
The University of Chicago
This paper proposes and provides evidence on a green bonding hypothesis, where green bonds act as a commitment device that subjects firms to institutions holding them accountable to their environmental promises. I find that green-bond issuers face higher climate change risks and opportunities but fewer financial constraints than do traditional-bond issuers. Moreover, consistent with green bonds acting as a commitment device, green-bond issuers increase emissions-target achievements and face more media scrutiny when their target progress decreases after issuing green bonds. In additional analyses, I find that when a municipality issues green bonds, the issuer experiences a reduction in financing costs for both traditional and green bonds issued on the same day, consistent with green bonds being an environmental commitment for an entity, rather than a security-level commitment.
