Green Bonds as an Instrument for the Ecological Transition – A risk Oriented Approach

Details

Supervisors

Grégoire, Philippe

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

The purpose of this study is to look at the Green Bonds as potential fixed income investments for institutional investors by taking a risk based approach. We will, after describing the particular market dynamics of Green Bonds, look at risks for the issuers, namely operational risks and reputational risks. We will also look at risks from the investors point of view, namely the interest, reinvestment, default, downgrading and liquidity risks. We will use semi-directive interviews for issuer risks. We will regress in a descriptive manner a sample up to 4247 recently issued corporate Green and Brown bonds databasein order to look into risks for investors. We will thus look at the additional risks to which Green Bonds are exposed compared to Brown Bonds. Our results show that the disadvantages presented in the literature are, for institutional investors, not as important as they used to be. We will show that issuer operational risks are negligible for organisations having their governance and reporting channels in check and that greenwashing is less of an issue if these channels of reporting are transparent. We will also present the reduced differences between the Green and Brown Bonds market where the aforementioned risks are concerned. We will discuss these results and interpret them based on the latest developments in the market and contemplate the expected future of the market in light of the upcoming EU Green Bond Standards. We will also shortly discuss what we see as being the major advantage of Green Bonds over Brown Bonds. We will then conclude by presenting the limits of our research whilst suggesting other avenues of research such as in depth specific risk analysis or sample choice. This study updates indicators relative to risks for investors and describes risks in the issuance of Green Bonds. Further studies are needed to look into the role of governance and reporting frameworks within the issuance process in order to assess their impact on risks for investors and issuers. Further studies are also needed in assessing the impact of future standards on these potential advantages of Green Bond issuance