Why do firms issue green bonds?

Abstract

The first green bond was issued by the European Investment Bank in 2007. Since then, the market has sharply increased from a less than USD1bn annual issuance to a higher than USD100bn annual issuance between 2007 and 2017. In this article, we investigate drivers of the green bond market’s success. We first look at whether green bonds benefit from any direct or indirect economic benefit as compared to non-green bonds. We then more deeply investigate the motives of firms deciding to issue green bonds. Aside from economic benefits, we show that firm characteristics, as well as the environment-related regulatory context, are key drivers of green bond issuance.