Does it pay to be transparent? - An empirical study on the relationship between yield and transparency for EU corporate green bonds

Abstract

This thesis uses OLS methodology to investigate the relationship between yields and transparency on green bonds. Transparency is divided into three categories: Self-labeled green bonds following the voluntary GBP framework, CBI aligned green bonds following CBI taxonomy with external verification and CBI certified green bonds following the CBI framework with mandatory external verification by the independent body Climate Bonds Standards Board. The dependent variable is monthly alternate yields between 2016 and 2022 of 1728 EU corporate green bonds with fixed coupons. Our findings suggest that CBI certified green bonds have 14 BPS lower yields than CBI aligned green bonds, which in turn have 16 BPS lower yields than self-labeled green bonds. These findings are consistent when controlling for currency, issued amount, issue price and remaining maturity. Our study contributes to green bond literature from a green finance perspective. When investors are willing to accept lower yields for increased transparency to avoid greenwashing risks, corporations have the possibility to get cheaper financing through being transparent which implies a potential of reducing the information asymmetry in the market. If information asymmetry is reduced, the green bond market has the possibility to grow into an important tool for investments in sustainable infrastructure which is crucial in order to reach the 1.5 degrees target in the Paris Agreement.