Baker, Bergstresser, Serafeim, and Wurgler (2018)

Baker, Malcom, Daniel Bergstresser, George Serafeim, and Jeffrey Wurgler. “Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds.” Working paper (Harvard Business School and NBER), 2018.

Estimates suggest that mitigating and adapting to climate change will cost trillions of dollars. We study the developing market for green bonds, which are bonds whose proceeds are used for environmentally sensitive purposes. After an overview of the U.S. corporate and municipal green bonds market, we study pricing and ownership patterns of municipal green bonds using a framework that incorporates assets with nonpecuniary sources of utility. The results support the prediction that green bonds are issued at a premium to otherwise similar ordinary bonds—that is, with lower yields—on an after-tax basis. They also support the prediction that green bonds are more closely held than ordinary bonds, particularly small or essentially riskless green bonds. Both pricing and ownership effects are stronger for bonds that are externally certified as green.