Green Bonds: An Evaluation of the Financial Performance of Green Bonds Compared to Conventional Bonds

Maximilian Natrup & Sofia Dietz

Student thesis: Master thesis


This study provides a comprehensive analysis of green bond performance in the secondary market. As green bonds have increasingly enjoyed popularity among investors and issuers, their market has rapidly grown over recent years. Although research has provided many insights into the green bond market, it has not yet come up with conclusive evidence on the financial performance of green bonds. To drive the knowledge on green bond performance forward and to identify bond attributes that determine the performance in particular, we carry out the following study. It is based on a bond sample that consists of matched green and non-green bonds showing similar characteristics. In this way, we can attribute differences in the bond performance to the green feature.
Our findings indicate that green bonds exhibit a Yield-to-Maturity that is 1.3 basis points lower than the one of comparable non-green bonds. As a consequence, green bonds trade at a slight premium. Furthermore, the findings reveal the importance of a bond’s issuer type. The expected Yield-to-Maturity of government green bonds is found to be 2.6 basis points lower than the one of non-green government bonds, whereas the difference is only 1.0 basis points considering corporate bonds. The findings also point towards varying green effects across different bond credit ratings as the green premium paid by investors is estimated to be higher for green bonds of the very high rated segment. According to our results, neither the ESG score nor the issue currency have a significant influence on the green effect. Finally, we investigate how green bonds perform when combined in a portfolio with other asset classes. Examining historical price movements, our results suggest that including green bonds in a widely dispersed portfolio leads to slightly higher diversification benefits than incorporating their non-green counterparts. Overall, we conclude that green bonds are an attractive investment opportunity offering both, a nearly equivalent return as similar traditional investments and a positive environmental impact. Contrarily, issuers do not seem to benefit from access to considerably cheaper financing when issuing green instead of conventional bonds.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2020
Number of pages116
SupervisorsJens Dick-Nielsen