Skip to main content

Thank you for visiting nature.com. You are using a browser version with limited support for CSS. To obtain the best experience, we recommend you use a more up to date browser (or turn off compatibility mode in Internet Explorer). In the meantime, to ensure continued support, we are displaying the site without styles and JavaScript.

  • Article
  • Published:

The changing value of the ‘green’ label on the US municipal bond market

Nature Climate Change volume 8, pages 161–165 (2018)Cite this article

Subjects

Abstract

Green bonds are seen as a key instrument to unlock climate finance. While their volume has grown steadily in recent years, the impact of the ‘green’ label on the bond market is poorly understood. Here, we investigate the differences between the yield term structures of green and conventional bonds in the US municipal bond market. We show that, although returns on conventional bonds are on average higher than for green bonds, the differences can largely be explained by the fundamental properties of the bonds. Historically, green bonds have been penalized on the municipal market, being traded at lower prices and higher yields than expected by their credit profiles. In recent years, however, the credit quality of municipal green bonds has increased and the premium turned positive. Green bonds are thus becoming an increasingly attractive investment, with scope to bridge the climate finance gap for mitigation and adaptation.

This is a preview of subscription content, access via your institution

Access options

Buy this article

  • Purchase on SpringerLink
  • Instant access to full article PDF
Buy now

Prices may be subject to local taxes which are calculated during checkout

Fig. 1

Similar content being viewed by others

References

  1. Buchner, B. et al. The Global Landscape of Climate Finance 2014 (Climate Policy Initiative, 2014).

  2. Bredenkamp, H. & Pattillo, C. Financing the Response to Climate Change. Note SPN10/06 25 (IMF, 2010).

  3. Mathews, J. A., Kidney, S., Mallon, K. & Hughes, M. Mobilizing private finance to drive an energy industrial revolution. Energy Policy 38, 3263–3265 (2010).

    Article  Google Scholar 

  4. Hamilton, K. Unlocking Finance for Clean Energy: The Need for ‘Investment Grade’ Policy (Chatham House, London, 2009).

  5. Green Bond Principles, 2016: Voluntary Process Guidelines for Issuing Green Bonds (International Capital Market Association, 2016). http://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/GBP-2016-Final-16-June-2016.pdf

  6. Green Bonds: Country Experiences, Barriers and Options (United Nations Environment Programme, 2016).

  7. Clapp, C., Alfsen, K. H., Lund, H. F. & Pillay, K. Green Bonds and Environmental Integrity: Insights from CICERO Second Opinions Policy Note 2016: 01 (CICERO, 2016).

  8. Summary of Green Bond Database Providers (GBP Databases and Indices Working Group, International Capital Market Association, 2017) https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Green-Bond-Databases-Summary-Document-190617.pdf

  9. BNEF Bloomberg Terminal Guide (Bloomberg New Energy Finance, 2015); https://data.bloomberglp.com/bnef/sites/4/2015/09/BNEF_Green-Bonds-Terminal-Guide_H2-2015-update.pdf

  10. World Bank Green Bonds (World Bank, accessed 29 September 2017); http://treasury.worldbank.org/cmd/htm/WorldBankGreenBonds.html.

  11. Blinder, A. S. Wage discrimination: reduced form and structural estimates. J. Hum. Resour. 8, 436–455 (1973).

    Article  Google Scholar 

  12. Oaxaca, R. Male–female wage differentials in urban labor markets. Int. Econ. Rev. 14, 693–709 (1973).

    Article  Google Scholar 

  13. Zerbib, O. D. The Green Bond Premium. SSRN Working paper 2889690 (2017), https://dx.doi.org/10.2139/ssrn.2889690.

  14. Svensson, L. Estimating and Interpreting Forward Interest Rates: Sweden 1992–1994. Working Paper 48711994 (National Bureau of Economic Research, 1994); https://ideas.repec.org/p/fth/stocin/579.html

  15. Jansson, M. & Biel, A. Motives to engage in sustainable investment: a comparison between institutional and private investors. Sustain. Dev. 19, 135–142 (2011).

    Article  Google Scholar 

  16. Lam, P. T. & Law, A. O. Crowdfunding for renewable and sustainable energy projects: An exploratory case study approach. Renew. Sustain. Energy Rev. 60, 11–20 (2016).

    Article  Google Scholar 

  17. Kidney, S. Bonds 2015 Year-end Review (Climate Bond Initiative, London, 2016).

  18. Getter, D. E. & Raj, G. The Demand for Municipal Bonds: Issues for Congress. Congressional Research Service Report (CRS, Washington, DC, 2015).

  19. Hayes, P. & Schwartz, J. Market Myths and Realities (Blackrock, New York, 2013).

  20. Electronic Municipal Market Access (Municipal Securities Rulemaking Board, accessed 25 September 2017); http://emma.msrb.org.

  21. MSRB Rule Book (MSRB, 2017, accessed 24 February 2017); http://www.msrb.org/msrb1/pdfs/MSRB-Rule-Book-PDF-Current-Quarter.pdf.

  22. Bond Credit Rating (Wikipedia, accessed 29 September 2017); https://en.wikipedia.org/wiki/Bond_credit_rating.

  23. Kroll Bond Rating Agency (Wikipedia, accessed 29 September 2017); https://en.wikipedia.org/wiki/Kroll_Bond_Rating_Agency.

  24. States Census Bureau (United States Census Bureau, 2016, accessed 24 February 2017); https://www.census.gov.

  25. Rate Statistics (US Department of the Treasury, 2016, accessed 24 February 2017). https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/default.aspx.

  26. Ametrano, F. & Ballabio, L. Quantlib — A Free/Open-Source Library for Quantitative Finance. Accessed 24 February 2017. http://quantlib.org/.

  27. Neumark, D. Employers’ discriminatory behavior and the estimation of wage discrimination. J. Hum. Resour. 23, 279–295 (1988).

    Article  Google Scholar 

  28. Powers, D. A., Yoshioka, H. & Yun, M.-S. mvdcmp: Multivariate decomposition for nonlinear response models. Stata 11, 556–576 (2011).

    Google Scholar 

  29. Jann, B. et al. The Blinder–Oaxaca decomposition for linear regression models. Stata 8, 453–479 (2008).

    Google Scholar 

  30. Reimers, C. W. Labor market discrimination against hispanic and black men. Rev. Econ. Stat. 65, 570–579 (1983).

    Article  Google Scholar 

  31. Cotton, J. On the decomposition of wage differentials. Rev. Econ. Stat. 70, 236–243 (1988).

    Article  Google Scholar 

  32. Yun, M.-S. Decomposing differences in the first moment. Econ. Lett. 82, 275–280 (2004).

    Article  Google Scholar 

  33. Karpf, A. Data and Code for Municipal Green Bonds Analysis v1.0 (2017); http://dx.doi.org/10.5281/zenodo.1068519.

Download references

Acknowledgements

The authors acknowledge financial support from the Horizon 2020 research and innovation programme under grant agreement no. 640772 (DOLFINS) and no. 642018 (GREEN-WIN). We thank the PostgreSQL, QuantLib and Scrapy projects for making their software freely available. The authors are grateful to G. Capelle-Blancard who provided useful comments on a previous version of this manuscript.

Author information

Authors and Affiliations

  1. Paris School of Economics, Université Paris, Paris, France

    Andreas Karpf & Antoine Mandel

Authors
  1. Andreas Karpf
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Antoine Mandel
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

On the basis of an idea of A.M., A.K. and A.M. designed the research and wrote the paper. A.K. designed and performed the quantitative analysis.

Corresponding author

Correspondence to Antoine Mandel.

Ethics declarations

Competing interests

The authors declare no competing financial interests.

Additional information

Publisher’s note: Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Karpf, A., Mandel, A. The changing value of the ‘green’ label on the US municipal bond market. Nature Clim Change 8, 161–165 (2018). https://doi.org/10.1038/s41558-017-0062-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1038/s41558-017-0062-0

This article is cited by

Search

Advanced search

Quick links

Nature Briefing

Sign up for the Nature Briefing newsletter — what matters in science, free to your inbox daily.

Get the most important science stories of the day, free in your inbox. Sign up for Nature Briefing