Climate Transition Risk and the Impact on Green Bonds

Yevheniia Antoniuk and Thomas Leirvik
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Yevheniia Antoniuk: Nord University Business School, Nord University, 8049 Bodø, Norway
Thomas Leirvik: Nord University Business School, Nord University, 8049 Bodø, Norway

JRFM, 2021, vol. 14, issue 12, 1-19

Abstract: The green bond market develops rapidly and aims to contribute to climate mitigation and adaptation significantly. Green bonds as any asset are subject to transition climate risk, namely, regulatory risk. This paper investigates the impact of unexpected political events on the risk and returns of green bonds and their correlation with other assets. We apply a traditional and regression-based event study and find that events related to climate change policy impact green bonds indices. Green bonds indices anticipated the 2015 Paris Agreement on climate change as a favorable event, whereas the 2016 US Presidential Election had a significant negative impact. The negative impact of the US withdrawal from the Paris agreement is more prominent for municipal but not corporate green bonds. All three events also have a similar effect on green bonds performance in the long term. The results imply that, despite the benefits of issuing green bonds, there are substantial risks that are difficult to hedge. This additional risk to green bonds might cause a time-varying premium for green bonds found in previous literature.

Keywords: green bonds; event study; climate regulatory risk; sustainable investment (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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