Does it pay to be greener? Exploring certification and scoring in the green bond market

The green bond market is new and exciting, but is the regulation, in the form of certicates and the green bond score, proving its value? I show, using a sample of 602 corporate bonds from 214 companies, that abnormal returns when issuing a green bond are based on irrational motives and not driven by certied products. However, when liquidity of a certied and scored issuers increases over a longer period of time it becomes apparent that future returns could be present. This prediction is conrmed when long-term improvements of ASSET4 scores are higher for certied bonds. This signals to investors they own shares of a future-proof company. Institutional owners already take certication, monitoring and scoring into account when they buy a stock in light of a green bond issue. Their role in the pre-issuance phase is measured using probit models and it shows that specic institutional owners improve the probability of having certicates and scores.