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For corporations, utility companies, or government entities that are looking to fund sustainability-focused projects—such as renewable power installations, energy-efficient building upgrades, or clean transportation infrastructure—issuing green bonds is an option that is gaining in popularity.

Green bonds differ from typical bonds in that the issuer pledges that the funds will be used for specific projects that meet a set of measurable sustainability impacts, such as efficient energy use or greenhouse gas reduction. The issuer often has a third-party monitor and also certifies the sustainability impact so that investors who want to support green initiatives are assured that the project they are funding delivers the promised outcomes.

But are green bonds actually delivering value to the issuers by reducing the funding cost—and thus the overall cost—of environmentally friendly projects compared to traditional bonds?

Associate Professor of Finance Sang Baum Kang at ������̳’s Stuart School of Business investigates that question in “,” a paper published in the Global Finance Journal.

Kang and his co-authors, ������̳ graduate Satwik Sinha (M.S. CS ’25) and Associate Professor Jiyong Eom at Korea Advanced Institute of Science and Technology, focus their research on a growing sector of the green bond market: high-yield green bonds. These bonds, which are rated below investment grade—that is, they carry a creditworthiness rating of BB++ or lower—allow companies with riskier credit profiles to finance green projects while also giving investors a way to align their returns on investment with environmental sustainability goals, says Kang.

The research team used global corporate data from Bloomberg to compare the average credit spreads—that is, the difference in yield between a United States Department of Treasury security and a corporate bond of the same maturity—of matched pairs of green bonds and traditional bonds. The team’s findings provide guidance for companies that are considering issuing green bonds, as well as for investors in the bond markets.

On the issuing side, Kang says, “A pricing advantage for issuers is possible, but not guaranteed. In our matched-pair analysis, high-yield green bonds had lower average credit spreads than comparable traditional bonds, but the differences were not statistically significant overall.”

“Issuers should not rely on the green label alone to reduce funding costs,” he says. “Our theoretical model indicates that credible use of proceeds, transparent reporting, and verifiable impact appear to be key in attracting investors who are willing to pay more for sustainability.”

For investors, Kang says that the research shows some cases in which high-yield green bonds can deliver slightly higher yields than investment-grade green bonds. “However, on average, we do not find evidence of a large or reliable pricing discount,” he notes. “Investors should focus on credit fundamentals and treat any pricing advantage as modest at best.”

Still, green bonds will likely remain an option for environmentally minded investors.

“The market for high-yield green bonds has been steadily growing, and at times rapidly,” Kang says. “For example, issuance surged in 2021 under low interest rates. Looking forward, growth will depend on macroeconomic conditions, investor demand, and, importantly, the credibility and measurement of environmental outcomes.”