Decoding Corporate Green Bonds: What Issuers Do With the Money and Their Real Impact

Abstract

I investigate the use of proceeds and the real impact of global corporate green bonds issued by non-financial firms, with a focus on greenhouse gas (GHG) emissions. The research reveals that green bond proceeds are allocated at a slower pace, are not used for shareholder payouts, and are less likely to be used for debt rollover compared to conventional bonds. This unveils a distinct motivation for issuing green bonds in contrast to conventional bonds. Employing market-level greenium as an instrumental variable in a Difference-in-Differences (DID) framework, I investigate the causal impact of green bond issuance on firm-level GHG intensity. Although improvements in GHG intensity are observed through Two-Way Fixed Effects (TWFE) and Event-study DID analyses, these improvements are not causally attributed to green bond issuance and are likely due to green initiatives that would have been funded regardless. I further explore the underlying mechanisms in this self-regulated market and find that repeat issuers voluntarily comply with the green bond framework, achieving tangible environmental improvements and giving credibility to the signal at issuance. The findings challenge the view that green bonds are simply conventional bonds with a “green” label and the view that green bonds causally lead to incremental sustainable outcomes.