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This paper studies green bonds, a relatively new instrument in sustainable finance. I first describe the market for green bonds and characterize the "green bond boom" witnessed in recent years. Second, using firm-level data on green bonds issued by public companies, I examine companies' financial and environmental performance following the issuance of green bonds. I find that the stock market responds positively to the announcement of green bond issues. Moreover, I document a significant increase in environmental performance, suggesting that green bonds are effective in improving companies' environmental footprint. These findings are only significant for green bonds that are certified by independent third parties, suggesting that certification is an important governance mechanism in the green bond market. I conclude by discussing potential implications for public policy.

Zonder onderwerpscode: economie

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This paper measures diversity, equity, and inclusion (DEI) using proprietary data on survey responses used to compile the Best Companies to Work For list. We identify 13 of the 58 questions as being related to DEI, and aggregate the responses to form our DEI measure. This variable has low correlation with gender and ethnic diversity in the boardroom, in senior management, and within the workforce, suggesting that DEI captures additional dimensions missing from traditional measures of demographic diversity. DEI is also unrelated to general workplace policies and practices, suggesting that DEI cannot be improved by generic initiatives. However, DEI is higher in small growth firms and firms with high financial strength. DEI is associated with higher future accounting performance across a range of measures, higher future earnings surprises, and higher valuation ratios, but demographic diversity is not. DEI perceptions among professional workers, such as R&D employees, are significantly correlated with the number and quality of patents. However, DEI exhibits no link with future stock returns.

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The use of private capital to finance biodiversity conservation and restoration is a new practice in sustainable finance. This study sheds light on this new practice. First, we provide a conceptual framework that lays out how biodiversity can be financed by i) pure private capital and ii) blended financing structures. In the latter, private capital is blended with public or philanthropic capital, whose aim is to de-risk private capital investments. The main element underlying both types of financing is the "monetization" of biodiversity, that is, the extent to which investments in biodiversity can generate a financial return for private investors. Second, we provide empirical evidence using deal-level data from a leading biodiversity finance institution. We find that projects with higher expected returns tend to be financed by pure private capital. Their scale is smaller, however, and so is their expected biodiversity impact. For larger-scale projects with a more ambitious biodiversity impact, blended finance is the more prevalent form of financing. While these projects have lower expected returns, their risk is also lower. This suggests that the blending--and the corresponding de-risking of private capital--is an important tool for improving the risk-return tradeoff of these projects, thereby increasing their appeal to private investors. Finally, we examine a set of projects that did not make it to the portfolio stage. This analysis suggests that, in order to be financed by private capital, biodiversity projects need to meet a certain threshold in terms of both their financial return and biodiversity impact. Accordingly, private capital is unlikely to substitute for the implementation of effective public policies in addressing the biodiversity crisis.

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Blended finance---the use of public and philanthropic funding to crowd in private capital---is a potential way to finance a more sustainable world. While blended finance holds the promise of being catalytic in mobilizing vast amounts of private capital, little is known about this practice. In this paper, we provide a conceptual framework that formalizes the decision-making of development finance institutions (DFIs) that engage in blended finance. We then provide empirical evidence on blended finance using data from a major DFI. The key variable we study is the level of concessionality, which captures the subsidy from the blended co-investment. Our findings indicate that DFIs provide higher concessionality for projects that have a higher sustainability impact per dollar invested. Moreover, the concessionality is higher for projects in countries with higher political risk and a higher degree of information asymmetries. In such cases, the blending tends to also include risk-management provisions. These findings are consistent with the predictions from our conceptual framework, in which DFIs have a limited budget that they allocate across projects to create societal value.