Green bonds in shipping : an event study of green bonds in shipping and their impact on institutional ownership and equity risk

Abstract

The allocation of capital to green projects have increased in recent years as focus on climate change and the necessity to transit to a more sustainable and carbon neutral environment have intensified. With decarbonization high on the agenda, and global regulations right around the corner, shipping companies must make important decisions today about which type of technology will be installed on their vessels in the decades to come. One instrument for allocating capital to green projects is the issuance of green bonds, whose popularity have exploded since the signing of the Paris Agreement. Because of the highly global and cyclical nature of the shipping industry, the changing face of green project financing raises an important question concerning whether green bond issuance influences the decision making of institutional investors in the shipping industry. Do institutional investors reward shipping companies who raises capital to fund green projects? This study addresses this issue by investigating the fundamental change in shipping companies’ ownership structure and risk profile in the years following implementation of green projects. Employing structural equation modeling, this study examines whether and how green bond issuance increase institutional ownership and reduce equity risk. We find evidence that following green bond issuance; total and unsystematic equity risk is reduced, cost of equity is reduced, and relative valuation is increased. Changes in institutional ownership is inconclusive. The implications of the findings are that equity owners in shipping companies could potentially reap benefits from implementing green projects, by issuing green bonds.