Identification and pricing of labelled green bonds

This paper precisely splits green bonds into 'externally labelled' (externally verified for greenness) and 'internally labelled' (unverified) instead of 'self-reported' and 'non-self-reported'; and compares at-issuance yields between externally and internally labelled green bonds. We estimate yield differentials through mean difference and linear regression on post-matching samples. The verified green bonds register lower yields than the unverified ones. This implies lower risk in verified green bonds, culminating in interest cost savings to issuers. The cost advantage sustains in alternate samples but vanishes in adverse business scenarios. This paper calls for early regulation of the external labelling market before the cost advantage evaporates.