Do green bonds reduce CO2 emissions? Evidence from developed and developing nations (2024)

FAQs

Do green bonds reduce CO2 emissions? Evidence from developed and developing nations? ›

The authors' regression results show that GBs significantly negatively impact CO2 emissions globally. In addition, the effect of GBs on CO2 emissions is strongly negative for developing countries, while the same influence becomes weak for developed nations.

We show that, between 2009 and 2019, energy firms, utilities and banks that issued a green bond were much more likely to disclose emissions data, and they have on average reduced their carbon intensity to a larger extent than other firms confirming -related commitments.

The findings suggest that green bonds can help firms finance carbon reductions, but they also indicate that a considerable fraction of green bond financing does not lead to measurable benefits for the environment.

However, there remain significant challenges and risks to the continued use and growth of the green bond market. These include inadequate green contractual protection for investors, the quality of reporting metrics and transparency, issuer confusion and fatigue, greenwashing, and pricing.

Advantages of Green Bonds

These bonds support the capital structure of the issuers. Typically, the holders of such bonds are permitted to use a portion of the proceeds to settle other debt and for working capital. The proceeds may also be used by the issuer to replace expensive debt on current green projects.

As a greenhouse gas, carbon dioxide traps heat in the earth's atmosphere, contributing to global warming. In contrast, renewable energy sources like solar and wind power don't produce carbon emissions as part of the electricity generation process. Instead they harness the natural energy from the sun and the weather.

Green bonds are debt instruments that differ from conventional fixed income securities only in that the issuer pledges to use the proceeds to finance projects that are meant to have positive environmental or climate effects. Since its debut in 2007, the green bond market has been growing steadfastly.

“Looking at the technical picture, several studies have shown that the historical volatility of green bonds is slightly lower than that of conventional bonds,” he added. “This is attributed to a more long-term focused investor base in green bonds, such as pension funds.”

Green bonds are more susceptible to geopolitical risk in times of high volatility. Corporate and sovereign bonds less vulnerable to geopolitical risk than green bonds.

Empirical results show that portfolios with green bonds outperform portfolios with conventional bonds in terms of risk-adjusted returns in the majority of cases in both markets. The benefit of green bonds comes from both the increase in the return and the decrease in the volatility for most of the cases.

Are green bonds sustainable? ›

The Green Bond Principles (GBP) seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.

Bonds have some advantages over stocks, including relatively low volatility, high liquidity, legal protection, and various term structures. However, bonds are subject to interest rate risk, prepayment risk, credit risk, reinvestment risk, and liquidity risk.

Issuing a green bond may directly lower the interest rate paid on the bond relative to conventional bonds. If a firm chooses to issue a green bond, it may attract new investors interested in sustainable investment, thereby increasing demand for the bond.

However, your savings are safe as you're not reliant on these green projects to be successful to ensure you get your money back. The first issue of the bond paid just 0.65% over three years, though the rate has since been changed six times, reaching a peak of 5.7% back in August 2023.

Cutting down on the miles you drive is one of the best things you can do for reducing carbon emissions. Organize shopping trips to get more done on each outing, walk or bike when distances are shorter, and use public transportation as much as possible.

Some other key features of microalgae are the high photosynthetic efficiency (Moreira and Pires, 2016; Sayre, 2010). Microalgae have the ability to fix carbon dioxide 10-50 times more than other terrestrial plants (Batista et al., 2015).