Author information:
Emilia Németh-Durkó: Corvinus University of Budapest, Assistant Lecturer. E-mail: emilia.durko@uni-corvinus.hu
Anita Hegedűs: Corvinus University of Budapest, Undergraduate Student and Recipient of the Thesis Award from the Hungarian Society of Economics. E-mail: hegedus.anita96@gmail.com
Abstract:
In this study, we carried out a performance analysis of green bond portfolios available from public databases for the period between 2017 and 2020. The aim of our research was to obtain empirical proof for the existence of the green premium, which was confirmed by risk-adjusted indicators, i.e. the Sharpe ratio, the M2 ratio and the Sortino ratio. The green premium is the return differential that can be measured between green and conventional financial instruments. According to the literature, investors are willing to forego 1 to 9 basis points of their returns in the interests of financing climate targets, to cover the issuer’s extra costs incurred from green bond ratings and reporting obligations. Our results confirmed that the green bond portfolio underperforms benchmark indices by an average green premium of 2 basis points. We only found a single green bond fund that did not involve a green premium and was capable of achieving a risk-adjusted excess return. Nevertheless, it is noted that all of the indicators used showed that the average performance of green bonds improved steadily each year in the period under review.
Cite as (APA):
Németh-Durkó, E., & Hegedűs, A. (2021). Climate Change in the Capital Markets: A Study of Actively Managed Green Bond Funds. Financial and Economic Review, 20(4), 38–64. https://doi.org/10.33893/FER.20.4.3864
Column:
Study
Journal of Economic Literature (JEL) codes:
C5, G10, G31, G38, Q50
Keywords:
sustainable investments, climate finance, green bonds, portfolio analysis
References:
Baker, M. – Bergstresser, D. – Serafeim, G. – Wurgler, J. (2018): Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds. SSRN Electronic Journal. http://doi.org/10.2139/ssrn.3275327
Baranyai, E. – Banai, Á. (2020): Do climate change projections appear in mortgage characteristics? 11th Annual Financial Market Liquidity Conference, Hungary, 26–27 November.
Bauer, R. – Koedijk, C.G. – Otten, R. (2005): International evidence on ethical mutual fund performance and investment style. Journal of Banking and Finance, 29(7): 1751–1767. https://doi.org/10.1016/j.jbankfin.2004.06.035
Bodie, Z. – Kane, A. – Marcus, J.A. (2005): Befektetések (Investments). Aula Kiadó.
Boros, E. (2020): Risks of Climate Change and Credit Institution Stress Tests. Financial and Economic Review, 19(4): 107–131. http://doi.org/10.33893/FER.19.4.107131
CBI (2017): Green Bonds Highlights 2016. Climate Bonds Initiative. https://www.climatebonds.net/files/files/2016 GB Market Roundup.pdf. Downloaded: 5 May 2019.
CBI (2020): 2019 Green Bond Market Summary. Climate Bonds Initiative. https://www.climatebonds.net/files/reports/2019_annual_highlights-final.pdf. Downloaded: 5 May 2019.
Chen, Y.S. – Chang, C.H. (2012): Enhance green purchase intentions: The roles of green perceived value, green perceived risk, and green trust. Management Decision, 50(3): 502–520. https://doi.org/10.1108/00251741211216250
Climent, F. – Soriano, P. (2011): Green and Good? The Investment Performance of US Environmental Mutual Funds. Journal of Business Ethics, 103: 275–287. https://doi.org/10.1007/s10551-011-0865-2
Deschryver, P. – de Mariz, F. (2020): What Future for the Green Bond Market? How Can Policymakers, Companies, and Investors Unlock the Potential of the Green Bond Market? Journal of Risk Financial Management, 13(3): 61. https://doi.org/10.3390/jrfm13030061
Ehlers, T. – Packer, F. (2017): Green Bond Finance and Certification. BIS Quarterly Review, September: 89–104. https://www.bis.org/publ/qtrpdf/r_qt1709h.htm. Downloaded: 5 May 2019.
Fama, E.F. – French, K.R. (2010): Luck Versus Skill in the Cross Selection of Mutual Fund Returns. The Journal of Finance, 65(5): 1915–1947. https://doi.org/10.1111/j.1540-6261.2010.01598.x
Filkova, M. – Boulle, B. – Frandon-Martinez, C. – Giorgi, A. – Giuliani, D. – Meng, A. – Rado, G. (2018): Bonds and Climate Change: The State of the Market 2018. https://www.climatebonds.net/files/reports/cbi_sotm_2018_final_01k-web.pdf. Downloaded: 5 May 2019.
Fogarassy, Cs. – Neubauer, É. – Mansur, H. – Tangl, A. – Oláh, J. – Popp, J. (2018): The main transition management issues and the effects of environmental accounting on financial performance – with focus on cement industry. Administratie si Management Public (31), pp. 52–66. https://www.ceeol.com/search/article-detail?id=718218. Downloaded: 8 February 2021.
Forsbacka, K. – Vulturius, G. (2019): A Legal Analysis of Terms and Conditions for Green Bonds. Europarättslig Tidskrift 3: 379–442. https://www.stockholmsustainablefinance.com/wp-content/uploads/2018/06/Forsbacka_Vulturius_2019.pdf. Downloaded: 5 June 2021.
Gianfrate, G. – Peri, M. (2019): The green advantage: Exploring the convenience of issuing green bonds. Journal of Cleaner Production, 219: 127–135. https://doi.org/10.1016/j.jclepro.2019.02.022
Gyura, G. (2020): Az addicionalitás vizsgálata a zöld kötvények kapcsán (An examination of additionality in relation to green bonds). PhD thesis, University of Pécs. https://pea.lib.pte.hu/bitstream/handle/pea/23690/gyura-gabor-phd-2020.pdf?sequence=1&%3Bamp%3BisAllowed=y. Downloaded: 8 February 2021.
Hachenberg, G. – Schiereck, D. (2018): Are green bonds priced differently from conventional bonds? Journal of Asset Management, 19(6): 383–423. https://doi.org/10.1057/s41260-018-0088-5
Harrison, S. (2019): Green Bond pricing in the primary market: January – June 2019. https://www.climatebonds.net/files/reports/cbi_gb_pricing_h1_2019_final.pdf. Downloaded: 5 January 2020.
Hyun, S. – Park, D. – Tian, S. (2018): The Price of Going Green: The Role of Greenness in Green Bond Markets. http://www.iksa.or.kr/resource/global/hak/2018-1-1.pdf. Downloaded: 5 January 2020.
IBA (2021): Green Bond Principles and the EU framework for green finance. International Bar Association. https://www.ibanet.org/article/f43b78f6-59d7-4b29-a332-e10ccc9ff0be#_ftnref2. Downloaded: 25 April 2021.
Ibikunle, G. – Steffen, T. (2017): European Green Mutual Fund Performance: A Comparative Analysis with their Conventional and Black Peers. Journal of Business Ethics, 145(2): 337–355. https://doi.org/10.1007/s10551-015-2850-7
ICMA (2019): Green Bond Principles Voluntary Process Guidelines for Issuing Green Bonds. International Capital Market Association. https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2018/Green-Bond-Principles---June-2018- 140618-WEB.pdf. Downloaded: 5 September 2020.
Jókuthy, L. (2020): Zöld kötvények. Befektetés a jövő generációjának (Green bonds. Investing for the next generation). Special article, Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/jokuthy-laura-zold-kotvenyek-befektetes-a-jovo-generaciojanak.pdf. Downloaded: 5 February 2021
Karpf, A. – Mandel, A. (2018): The changing value of the ‘green’ label on the US municipal bond market. Nature Climate Change, 8(2): 161–165. https://doi.org/10.1038/s41558-017-0062-0
Kidd, D. (2015): Indexes Sprout Up as Green Bonds Take Root. Investment Risk and Performance, 2015(1). https://deborahkidd.com/wp-content/uploads/Indexes-Sprout-Up-as-Green-Bonds-Take-Root-1.pdf. Downloaded: 2 February 2019.
Kolozsi, P. P. (2019): Piaci összeomlással fenyeget a klímaváltozás? (Is climate change threatening with collapse?) Economania. https://economaniablog.hu/2019/12/17/piaci-osszeomlassal-fenyeget-a-klimavaltozas/. Downloaded: 25 April 2021.
Lovas, A. – Berlinger, E. – Dömötör, B. – Keresztúri, J.L. – Ölvedi, T. – Petróczy, D.G. – Pollák, Z. (2019): Pénzügyi számítások – Bevezetés a pénzügyi termékek értékelésébe (Financial calculations – Introduction to the valuation of financial products). http://unipub.lib.uni-corvinus.hu/4465/1/PenzugyiSzamitasokKonyv_201912.pdf. Downloaded: 5 February 2020
MacAskill, S. – Roca, E. – Liu, B. – Stewart, R.A. – Sahin, O. (2021): Is there a green premium in the green bond market? Systematic literature review revealing premium determinants. Journal of Cleaner Production, 280(2): 124491. https://doi.org/10.1016/j.jclepro.2020.124491
MNB (2019): Green finance in Hungary. Consultation document, Magyar Nemzeti Bank. https://www.mnb.hu/letoltes/green-finance-in-hungary-consultation-paper.pdf. Downloaded: 5 January 2020.
Mihálovits, Zs. – Tapaszti, A. (2018): Zöldkötvény, a fenntartható fejlődést támogató pénzügyi instrumentum (Green Bond, the Financial Instrument that Supports Sustainable Development). Pénzügyi Szemle (Public Finance Quarterly), 2018(3): 312–327.
Nanayakkara, M. – Colombage, S. (2019): Do investors in Green Bond market pay a premium? Global evidence. Applied Economics, (51)40: 4425–4437. https://doi.org/10.1080/00036846.2019.1591611
Németh-Durkó, E. (2019): Környezet és pénzügyek (Environment and finance). Discussion paper, Corvinus University of Budapest, Department of Investment and Corporate Finance, Budapest. http://unipub.lib.uni-corvinus.hu/4294/. Downloaded: 1 November 2019.
OECD (2017): Investing in Climate, Investing in Growth. OECD Publishing, Paris. http://doi.org/10.1787/9789264273528-en
Partridge, C. – Medda, F.R. (2020): The evolution of pricing performance of green municipal bonds. Journal of Sustainable Finance and Investments, 10(1): 44–64. https://doi.org/10.1080/20430795.2019.1661187
Pham, L. (2016): Is it risky to go green? A volatility analysis of the green bond market. Journal of Sustainable Finance & Investment, 6(4): 1–29. http://doi.org/10.1080/20430795.2016.1237244
Rácz, D.A. (2019): Abszolút hozamú befektetési alapok teljesítményének értékelése – a teljesítménymanipulálás kimutatása (Performance evaluation of absolute return funds – Detecting performance manipulation). Közgazdasági Szemle (Economic Review), 66(7–8): 824–846. https://doi.org/10.18414/KSZ.2019.7-8.824
Reichelt, H. (2010). The euromoney environmental finance handbook – Green bonds: a model to mobilise private capital to fund climate change mitigation and adaptation projects. https://documents1.worldbank.org/curated/en/680921507013408005/pdf/120168-BRI-PUBLIC-euromoney-handbook-2010-green-bonds.pdf. Downloaded: 2 May 2019.
Sági, J. (2020): Zöldkötvények kibocsátásának egyes kérdései, a környezeti célokkal összefüggésben (Certain Aspects of Green Bond Issuances in Relation to Environmental Goals). Polgári Szemle (Civic Review Journal of Economic and Social Sciences), 16(4–6): 270–278. https://doi.org/10.24307/psz.2020.1019
Stempler, B. (2021): ESG Investing: The Use of ESG Ratings in a Smart Beta Strategy. Financial and Economic Review, 20(2): 91–116. http://doi.org/10.33893/FER.20.2.91116
Sartzetakis, E.S. (2020): Green bonds as an instrument to finance low carbon transition. Economic Change and Restructuring, 54: 755–779. https://doi.org/10.1007/s10644-020-09266-9
Shislov, I. – Morel, R. – Cochran, I. (2016): Beyond transparency: unlocking the full potential of green bonds. Institute for Climate Economics. https://www.i4ce.org/wp-core/wp-content/uploads/2016/06/I4CE_Green_Bonds-1.pdf. Downloaded: 2 February 2019.
Timár, B. (2021): How Does the Market Price Responsible and Sustainable Investments? Financial and Economic Review, 20(2): 117–147. http://doi.org/10.33893/FER.20.2.117147
Taghizadeh-Hesary, F. – Yoshino, N. – Phoumin, H. (2021): Analyzing the Characteristics of Green Bond Markets to Facilitate Green Finance in the Post-COVID-19 World. Sustainability, 13(10): 5719. https://doi.org/10.3390/su13105719
Tang, D.Y. – Zhang, Y. (2018): Do shareholders benefit from green bonds? Journal of Corporate Finance, 61(C). https://doi.org/10.1016/j.jcorpfin.2018.12.001
Tuhkanen, H. – Vulturius, G. (2020): Are green bonds funding the transition? Investigating the link between companies’ climate targets and green debt financing. Journal of Sustainable Finance & Investment. https://doi.org/10.1080/20430795.2020.1857634
Zerbib, O.D. (2019): The effect of pro-environmental preferences on bond prices: Evidence from green bonds. Journal of Banking & Finance, 98(January): 39–60. https://doi.org/10.1016/j.jbankfin.2018.10.012