Do the Shades of Green Matter? The Pricing and Ownership of Dark-green Bonds

Abstract

Do the Shades of Green Matter? The Pricing and Ownership of “Dark- green” Bonds Gianfranco Gianfrate EDHEC Business School Marco Spinelli EDHEC Business School January 2021 Summary Green bonds are a relatively new type of bond defined by the International Capital Markets Association (ICMA) as “any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new or/and existing eligible green projects”. The “greenness” of bonds usually is certified by an external review. According to the ICMA’s Green Bond Principles, there are four main types of green external reviews: second-party opinion, verification, certification, and green rating. External reviewers are typically independent research institutions dedicated to environmental research such as the Center for International Climate Research (CICERO). The objective of an external reviewer is to determine whether a given activity or technology supports a low-carbon and climate resilient society in the long-term. The second opinions are typically graded Light Green, Medium Green or Dark Green. Light Green is allocated to projects that are climate-friendly but lack a long-term horizon; while the bond proceeds can deliver short-term GHG emission reductions, the project will still extensively rely mostly on fossil fuels. Medium Green is allocated to projects that incorporate a long-term vision to reduce emissions, but they are not ambitious in the scope of carbon footprint …

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