Green Bonds: the Sovereign Issuers’ Perspective

Photo by Paul Blenkhorn on Unsplash
Raffaele Doronzo, Vittorio Siracusa and Stefano Antonelli
Mercati, infrastrutture, sistemi di pagamento, 2021
Level: advanced
Perspectives: Ecological Economics, Institutionalist Economics, Neoclassical Economics
Topic: finance, markets, money & debt
Format: Working paper/Journal article
Link: https://www.bancaditalia.it/pubblicazioni/mercati-infrastrutture-e-sistemi-di-pagamento/approfondimenti/2021-003/N.3-MISP.pdf?language_id=1

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Green Bonds: the Sovereign Issuers’ Perspective

Raffaele Doronzo, Vittorio Siracusa and Stefano Antonelli  | 2021 | Mercati, infrastrutture, sistemi di pagamento, No. 3
 

 

 


Abstract: After a brief illustration of sovereign green bonds’ features, this paper describes the market evolution and identifies the main benefits and costs for sovereign issuers. The financial performance of these securities is then analysed. In the primary market, the yields at issuance of sovereign green bonds are compared with the yields of similar non-green bonds. In the secondary market, the evolution of the yields of the sovereign green bonds issued by France, Belgium, Ireland and the Netherlands is analysed. The results show that the sovereign green bonds’ performance is essentially in line with that of conventional bonds. However, this conclusion does not represent a disincentive to enter this market, since the choice of issuing this kind of security does not simply hinge upon economic convenience valuations: green bonds are a valid tool for mitigating environmental risks and coping with the intergenerational trade-offs implied by climate-related policies.

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Comment from our editors:

Green bonds are all the rage in the current efforts to try and create a financial system contributing to a sustainable economy. But how to precisely delineate them from conventional bonds? And will they earn investors about the same, less or more yield? Above all, will they hence be an attractive tool from the issuer's point of view? This working paper from the "Markets, infrastructures, payment system" series by the Banca d'Italia makes a valuable contribution to a debate that is decidedly pluralistic in nature: Is it sensible to create 'green' financial instruments? Or were it better to leave finance alone and then employ the proceeds in the fight against climate change?


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