No. 191: Lighting the Green: The Role of Green Bond Sections in the European Market

This study analyzes the role of green bond sections (GBS) in the European corporate bond market, focusing on whether they can assist investors in addressing greenwashing challenges. The listing on a GBS is tied to requirements relating to textual disclosures and external review mechanisms. Arguably, the listing signals that the green bond adheres to those requirements whose compliance is monitored by the trading venue operator, thereby reducing information asymmetries. Thus, this study investigates the relationship between listing a corporate green bond on a GBS and information asymmetries proxied with the bid-ask spread. Findings show that the listing on GBS is, on average, associated with reduced information asymmetries. Further, the association is more pronounced for bonds that are smaller, unrated or high yield, as well as bonds on GBS with higher listing requirements. Further, the results indicate that GBS listings may signal credibility independently of the disclosure quality. Overall, the paper provides empirical evidence that trading venue-level mechanisms may serve as a useful complement to existing disclosure practices in the green bond market.