Green bond markets have witnessed rapid expansion and investor enthusiasm over time, yet their dynamics can be complex.

Green bond issuers’ stock prices typically increase when an offering of green bonds is announced and this effect persists over a two-day event window. GB, RE, OVX, SOE and CVI exhibit more symmetrical distribution patterns than would be expected from normal series, with negative skewness values that suggest this.

Issuers

Green bonds provide sustainable projects with necessary capital, while their issuance can assist corporate or sovereign issuers with meeting their sustainability goals. Unfortunately, multiple studies do not indicate any price differential between green bonds and traditional debt instruments, nor the benefits they offer (Maltais & Nykvist 2020).

Over the past year, sustainable bonds issuance has seen an upswing. Many first-time issuers, such as Egypt’s Commercial International Bank and IFC have entered the market; repeat issuers like these two also renewed their commitment.

The first half of 2023 witnessed an unprecedented surge in impact bond issuance, led by Europe with US$244 billion raised from Netherlands-issued bonds and Italy sovereign issues totalling US$100 billion combined. Unfortunately, however, meeting EU voluntary Green Bond Standard requirements may prove challenging for issuers and could discourage uptake; furthermore ad-hoc reporting of use of proceeds may produce inconsistent comparisons among investments.

Markets

Investment in green bonds can help investors align their fixed-income portfolio with their environmental sensibilities and values. Issued by companies, financial institutions or sovereign governments for sale to investors through primary or secondary markets; investors can also access exchange-traded funds that offer exposure to green bonds.

Green bond funds have experienced strong inflows so far this year, even while the overall market has experienced difficulties. This growth indicates an appetite for sustainability-linked debt instruments.

As the green bond market expands, we can anticipate an increase in investments in renewable energy projects, climate resilience measures and low carbon infrastructure – projects which are integral to meeting global climate goals and supporting sustainable development.

Credit

Green bonds are debt instruments whose proceeds are designated for environmentally beneficial projects, making them attractive investments to many investors who prioritize environmental causes and values.

2022 was an uncertain year for global capital markets, marked by geopolitical tensions from Russia’s invasion of Ukraine and tighter monetary policy from major economies to combat inflationary pressures. Global fixed income issuance decreased by 26 percent whereas green bonds sales witnessed only minor reductions – 13 percent less.

Green bond issuance appears set for a surge, according to research conducted by IFC and Amundi. Their study predicts sales will surge 14 percent this year in emerging markets outside China and 11 percent the following year – essential growth that could enable emerging economies finance their energy transitions and meet Paris climate targets.

Liquidity

Green bonds, sustainable fixed income instruments that raise funds to finance projects that have positive environmental and climate impacts according to the International Capital Market Association’s Green Bond Principles, continue their exponential expansion globally. Examples of projects funded with green bonds include renewable energy generation, eco-friendly transportation initiatives and watershed protection measures.

Green bond issuance reached $314 billion during the first half of 2023, showing steady expansion across all regions. Yet despite their increasing market presence, sustainability-related investments still face challenges that could prevent their progress from flourishing further.

Investors are showing increased enthusiasm for environmental, social and governance (ESG) products like green bonds that offer positive societal impact as well as risk-adjusted financial returns. But their sustained existence may depend on developing stringent standards and protocols for reviewing issuances – frameworks which require cooperation among all players involved in green finance to give investors and issuers the confidence that their purchases truly qualify as “greenium.”