Green bond and Green halo: Difference between pages

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A green bond is not a particularly tightly defined term, but is generally thought of as a fixed income instrument launched to fund specific environmental or green projects such as projects to reduce CO<sub>2</sub> emissions.
''Sustainability - sustainable finance - pricing - cost of capital - halo effect.''


The amounts issued have grown rapidly, according to information collated by the Climate Bonds Initiative, a non profit organisation established in 2010. However, total amounts issued remain a relatively small proportion of total bond issuance.
A green halo is a theoretical benefit enjoyed by an organisation or sector from green activity or signalling, outside the immediate scope of the activity itself.


Guidelines for green bonds, the Green Bond Principles, have been issued by a group of 25 leading banks, coordinated by the ICMA ([[International Capital Market Association]]), to establish a voluntary framework for these instruments.  
For example, benefits resulting from related reputational improvements.




Green bonds are an important part of green finance.
:<span style="color:#4B0082">'''''Green halo might lead to lower cost of capital for green bond issuers'''''</span>


Green bonds are also sometimes known as 'ESG' (Environmental, Social and Governance) bonds.
:"...green bonds may provide additional indirect benefits for the issuer.
 
:For instance, by highlighting the environmental credentials of an issuer, green bonds offer a marketing benefit, potentially lowering the firm’s cost of capital by attracting new investors, or potentially improving business performance by attracting new customers.
 
:This hypothesized indirect effect is called the green halo...
 
 
:The argument for issuing green bonds to capture a green halo can be situated within the theoretical context of signaling problems.
 
:Firms possess asymmetric information about their environmental credentials, such as future plans to reduce emissions. If this information is not or cannot be communicated effectively to investors with a preference for sustainability, firms may suffer from suboptimal costs of capital.
 
:Issuing a green bond may serve as a (potentially costly) solution to address the signaling problem and achieve a more optimal capital cost."
 
:''The Green Corporate Bond Issuance Premium - International Finance Discussion Papers 1346 - Board of Governors of the Federal Reserve System - 2022, p7-8.''




== See also ==
== See also ==
* [[Carbon footprint]]
* [[Asymmetric information]]
* [[Carbon-neutral]]
* [[Bond]]
* [[ESG investment]]
* [[Cost of capital]]
* [[Fixed income]]
* [[Emissions]]
* [[Green Bond Principles]]
* [[Federal Reserve System]]
* [[Green finance]]
* [[Green]]
* [[Greenwash]]
* [[Green bond]]
* [[IPCC]]
* [[Green curve]]
* [[Retail bond]]
* [[Green gilt]]
* [[Sustainability bond]]
* [[Greenium]]
* [[Halo effect]]
* [[Issuance]]
* [[Issuer]]
* [[Optimal capital structure]]
* [[Premium]]
* [[Reputational risk]]
* [[Signalling]]
* [[Sustainability]]
* [[Sustainable finance]]
 


==External link==


===Other links===
*[https://www.federalreserve.gov/econres/ifdp/the-green-corporate-bond-issuance-premium.htm Caramichael, John and Andreas Rapp (2022) - "The Green Corporate Bond Issuance Premium," International Finance Discussion Papers 1346. Washington: Board of Governors of the Federal Reserve System]
[http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds/governance-framework/ Green Bond Principles]


[[Category:Corporate_financial_management]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:Ethics_and_corporate_governance]]
[[Category:The_business_context]]
[[Category:Ethics]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]

Revision as of 20:54, 3 January 2023

Sustainability - sustainable finance - pricing - cost of capital - halo effect.

A green halo is a theoretical benefit enjoyed by an organisation or sector from green activity or signalling, outside the immediate scope of the activity itself.

For example, benefits resulting from related reputational improvements.


Green halo might lead to lower cost of capital for green bond issuers
"...green bonds may provide additional indirect benefits for the issuer.
For instance, by highlighting the environmental credentials of an issuer, green bonds offer a marketing benefit, potentially lowering the firm’s cost of capital by attracting new investors, or potentially improving business performance by attracting new customers.
This hypothesized indirect effect is called the green halo...


The argument for issuing green bonds to capture a green halo can be situated within the theoretical context of signaling problems.
Firms possess asymmetric information about their environmental credentials, such as future plans to reduce emissions. If this information is not or cannot be communicated effectively to investors with a preference for sustainability, firms may suffer from suboptimal costs of capital.
Issuing a green bond may serve as a (potentially costly) solution to address the signaling problem and achieve a more optimal capital cost."
The Green Corporate Bond Issuance Premium - International Finance Discussion Papers 1346 - Board of Governors of the Federal Reserve System - 2022, p7-8.


See also


External link