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Are green bonds performing good? An Academic Perspective

Green bonds are fixed income investments that fund environmentally friendly projects. A typical example is a bond for investments in renewable energy and energy-saving buildings. Green bond issuance is growing fast and breaking new records. In 2019 global new issues reached USD 257.7 billion (Climate Bonds Initiative, 2019). However, do green bonds properly reflect environmental value? Empirical evidence shows that environmental assets such as emission credits and clean energy indices have positive correlations with energy values such as fossil fuels (see e.g., Kanamura (2016), Gupta (2017)).
Research paper by Takashi Kanamura analyses correlations between green bond prices and crude oil prices. This relationship offers insights on the existence of greenness in green bonds by their relative pricing. The paper employs three main bond indices for green bonds: Solactive Green Bond Index, the Bloomberg Barclays MSCI ESG and the S&P Green Bond Index. For crude oil benchmarks the paper applies the WTI and Brent.
The author demonstrates that the expected returns of green bond premiums are positive while decreasing, and the risks of green bond premiums are slightly decreasing but almost flat over time in recent years. This results in positive but decreasing information ratios. These findings imply that green bond investment performance is superior to conventional bond investment performance but the superiority is decaying over time. It also implies that positive expected returns of green bond premiums may lead to negative yield differences between green and conventional bonds when taking into account bond price-yield relationship .
Further analyses using data on green and conventional bond indices and crude oil prices show that the Bloomberg Barclays MSCI and the S&P green bond indices tend to have positive correlations and increase in line with both WTI and Brent crude oil price. In contrast, the Solactive green bond index tends to have negative correlations with and decrease in line with both WTI and Brent crude oil prices. This may be due to the fact that the Solactive green bond index does not track green bond market accurately because of its upper limits on green bond weighting, making the comparison difficult. It further implies that the positive correlations may be driven by tail green bond exposures.
Empirical evidence demonstrates a number of specifics of green bonds:
  • positive market reaction to issue announcement
  • improvement in long-term value and operating performance
  • improvement in environmental performance
  • increase in green innovations
  • Increase in ownership by long-term and green investors.
Even though findings show that returns on corporate bonds are on average higher than on green bonds, the differences can largely be explained by the fundamental properties of the bonds. On a risk-adjusted basis, green bonds are proving to be equal or superior to corporate bond performance. Furthermore, corporate green bonds trade tighter than their comparable non-green bonds, while government-related green bonds trade marginally wider.


  • Climate Bonds Initiative, 2019. 2019 Green Bond Market Summary. Climate Bonds Initiative.
  • Kanamura, T., 2013. Financial turmoil in carbon markets. J. Altern. Invest. 15, 92–113.
  • Gupta, K., 2017. Do economic and societal factors influence the financial performance of alternative energy firms? Energy Econ. 65, 172–182.
  • Kanamura T.: Are green bonds environmentally friendly and good performing assets? (2020), Energy Economics, Volume 88, 104767, ISSN 0140-9883,
  • Zerbib, O.D., 2019. The effect of pro-environmental preferences on bond prices: evidence from green bonds. J. Bank. Financ. 98, 39–60.
  • Flammer, C. (2021). Corporate green bonds. Journal of Financial Economics.

About the author:

Mijat Kustudic is a researcher and scholar with focus on finance and A.I. He is also a seasoned project manager in sustainability and has participated in numerous initiatives across Europe, Africa, and Asia.
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