The Pricing and Ownership of US Green Bonds

Abstract

We review the pricing and ownership of green bonds, whose proceeds are used for environmentally focused purposes. After presenting an overview of the literature on green securities and green bonds in particular, we summarize the US corporate and municipal green bond markets. Green municipal bonds provide the best opportunity for detailed empirical study of how pricing and ownership differ from those of ordinary bonds. Green bonds are issued at a small premium of several basis points over similar ordinary bonds except when they are issued simultaneously with ordinary bonds from the same issuer; in that situation, a premium emerges over time on the secondary market. Green bonds, especially small or nearly riskless ones, are also more closely held than ordinary bonds. These facts are consistent with a simple framework that incorporates assets with nonpecuniary utility. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.