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Climate Transition Risk and the Impact on Green Bonds

Author

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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
    School of Business and Economics, UiT The Arctic University of Norway, 9037 Tromsø, Norway
    NTNU Business School, Norwegian University of Science and Technology, 8900 Trondheim, Norway)

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.

Suggested Citation

  • Yevheniia Antoniuk & Thomas Leirvik, 2021. "Climate Transition Risk and the Impact on Green Bonds," JRFM, MDPI, vol. 14(12), pages 1-19, December.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:12:p:597-:d:699912
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    4. Zhou, Yang & Xie, Chi & Wang, Gang-Jin & Gong, Jue & Li, Zhao-Chen & Zhu, You, 2024. "Who dominate the information flowing between innovative and traditional financial assets? A multiscale entropy-based approach," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 329-358.

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