This paper focuses on sovereign green bonds issued in Europe. By issuing green bonds, European governments commit themselves to realizing environmentally friendly projects and encourage other entities, including private-sector ones, to do the same, thus increasing further domestic investments in addressing climate change. However, considering that governments could pursue their sustainable goals by also issuing conventional bonds, this begs the question of why governments should prefer green bonds. A dataset of European sovereign green bonds was retrieved from the Bloomberg Fixed Income database to answer this question. The data cover all European sovereign green bonds issued until the end of 2023. Quantitative analysis confrms the existence of a small green premium for the issuers, representing an incentive to increase the issuances of sovereign green bonds. Furthermore, the government’s carbon emissions reduction, the power sector decarbonization, and good climate policies, measured by the Government Climate Risk Score, contribute to further reducing a country’s climate risk and consequently the costs of the issuance, thus triggering a virtuous circle which could, in turn, accelerate the transition to net-zero emissions. Despite these benefts, hurdles still exist, and have curbed the development of the market. Examples include divergence between the use of funds raised through green bonds, which should be earmarked exclusively for climate and environmental projects, and the fungibility requirements for proceeds from sovereign debt and fiscal revenues.

Can Sovereign Green Bonds Accelerate the Transition to Net‑Zero Greenhouse Gas Emissions?

Giuseppina Chesini
2024-01-01

Abstract

This paper focuses on sovereign green bonds issued in Europe. By issuing green bonds, European governments commit themselves to realizing environmentally friendly projects and encourage other entities, including private-sector ones, to do the same, thus increasing further domestic investments in addressing climate change. However, considering that governments could pursue their sustainable goals by also issuing conventional bonds, this begs the question of why governments should prefer green bonds. A dataset of European sovereign green bonds was retrieved from the Bloomberg Fixed Income database to answer this question. The data cover all European sovereign green bonds issued until the end of 2023. Quantitative analysis confrms the existence of a small green premium for the issuers, representing an incentive to increase the issuances of sovereign green bonds. Furthermore, the government’s carbon emissions reduction, the power sector decarbonization, and good climate policies, measured by the Government Climate Risk Score, contribute to further reducing a country’s climate risk and consequently the costs of the issuance, thus triggering a virtuous circle which could, in turn, accelerate the transition to net-zero emissions. Despite these benefts, hurdles still exist, and have curbed the development of the market. Examples include divergence between the use of funds raised through green bonds, which should be earmarked exclusively for climate and environmental projects, and the fungibility requirements for proceeds from sovereign debt and fiscal revenues.
2024
Green bond, Sovereign, · Regulation, · Greenium, · Climate change,· Climate policy
File in questo prodotto:
File Dimensione Formato  
Sovereign_IAER.pdf

accesso aperto

Tipologia: Versione dell'editore
Licenza: Dominio pubblico
Dimensione 576.78 kB
Formato Adobe PDF
576.78 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11562/1128326
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact