The green bond markets in Norway and Sweden : exploring the differences between the two markets

Abstract

This study explores the differences between the green bond markets of Norway and Sweden in an attempt to shed light on the markets’ distinct evolution. First, the existence of green bond yield premiums in the primary and secondary capital markets is investigated. The primary market analysis finds a negative issue yield premium for green bonds in Sweden and a positive issue yield premium for green bonds in Norway, although none of them significant. Furthermore, the issue yield premium is discovered to have varied considerably over time. The secondary market analysis finds a significant negative ask yield premium for green bonds in Sweden and a significant positive ask yield premium for green bonds in Norway, providing evidence that Swedish secondary market investors have a higher demand for green bonds. The analysis further uncovers that issuer credibility plays an important role in green bond issuance, with bonds from governmental entities having negative premiums in both markets. The largest differences in premiums between the markets are found in the corporate sector. The final analysis of this thesis investigates whether these results can be explained by differences in Green Focus between companies in the two markets, where Green Focus is measured by the amount of sustainability related words in the companies’ annual reports. The main finding is that companies who have issued green bonds in Sweden have a higher Green Focus than such companies in Norway, which is consistent with the results of the primary and secondary market analyses and with the growth in the Swedish green bond market. Keywords – Green bonds, Green bond premium, Textual analysis, Norway, Sweden, Master thesis