The Global Green Bond Market in the Face of the COVID-19 Pandemic

This paper summarizes the relevant researches in the area of the green bond market within the perspective of the performance of the global green bond market in the face of the COVID-19 pandemic. Despite the rapid expansion of the green bond market during the last decade, this market has also experienced the consequences of the COVID-19 pandemic. The researches on the effect of COVID-19 and its induced crisis on the green bond markets are still fragmentary; therefore, the main purpose of this research is to evaluate the impact of the COVID-19 pandemic on the global green bond market. To reach the purpose, the methods of literature analysis, and correlation-regression analysis are used. In the first section of the paper, the research problem is presented; in the second part the analysis of academic literature is conducted; in the third part the design of the research is described, and in the fourth part the results of the assessment of the impact of COVID-19 pandemic on the global green bond market are discussed. The results of the research revealed that the spread of the COVID-19 pandemic appeared to have a negative impact on the performance of the S&P Green Bond Index. The market reaction to deaths caused by COVID-19 infection proved to be stronger than the reaction to confirmed cases of COVID-19 infection. However, after a sufficiently significant negative shift, which was observed in the first quarter of 2020, the S&P Green Bond Index regained its upward trend, which continued for the rest of the year.


Introduction
Since the first issuance in the year 2007, the green bond market has attracted great interest from the market participants and has demonstrated a rapid expansion: from annual issuance of 30 billion U.S. dollars in the year 2013 (Tukhanen & Vulturius, 2020) to a new annual record of 270 billion U.S. dollars in the year 2020 (Sustainable Bond Insight, 2021). However, it is important to mention that although the significant development of the green bond markets is observed in advanced economies, the green bond market in lower and middle-income countries is still in the embryonic state (Otec Ntsama et al., 2021). Moreover, despite the demonstrated tremendous growth, the green bond market still remains small in comparison with the fixedincome market (Liaw, 2020).
Despite the outstanding success of the green bond market during the last decade, this market has also inevitably confronted with the consequences of the COVID-19 infection and pandemic-induced downturn. Whereas there are little researches on the effect of COVID-19 and its induced crisis on the green bond markets, the main purpose of this paper is to evaluate the impact of the COVID-19 pandemic on the global green bond market. Seeking to achieve the main purpose, after the analysis of relevant academic literature, we use the method of correlation-regression analysis in order to quantitatively assess the effect that COVID-19 had made on the global green bond market. For our research, as a dependent variable the S&P Green Bond Index was selected, and as independent variables the COVID-19 related measures were used.
The rest of the paper is structured as follows: (i) in Section 1 the analysis of the academic literature is conducted, (ii) in Section 2 the logics and design of the research are described, (iv) in Section 3 the results of the assessment of the impact of the COVID-19 pandemic on the global green bond market is discussed; and finally, (v) the conclusions and directions for future research are presented.

Literature review
Climate change and deterioration of the environment, both induced by fast and unsustainable economic growth, have been threatening the world for decades. International institutions make great efforts in order to ensure sustainable and resource-efficient economic growth (for example, Paris Agreement (United Nations Framework Convention of Climate Change) or A European Green Deal (European Commission)). Funding of such efforts has become an essential issue of climate negotiations (Flaherty et al., 2017). Being one of the most important drivers of economic growth, the financial sector has also been seeking sustainable and climateneutral decisions. Green bonds are one of the most important innovations of sustainable finance (Maltais & Nykvist, 2020), also a crucial tool for raising funds necessary to reach the climate targets (Tukhanen & Vulturius, 2020) Moreover, empirical evidence allows to state that the green bonds not only contribute to a low-carbon transition, but also positively affects economic growth (Glomsrod & Wei, 2018).
From a perspective of financial market participants, it could be stated that the green bonds provide benefits for both issuers and investors. On the one hand, the issuers can: (i) assess a broader range of investors, i.e. reach better visibility; (ii) get a better price and more favorable terms, (iii) facilitate more engagement with the investor; (iv) improve their internal processes; (v) enhance their reputation; and even (vi) develop new business lines and commercial opportunities (Harrison et Zhou & Cui (2019), participation in the green bond market can positively affect companies' stock price, profitability, operational performance, and innovation capacity. However, Liaw (2020), after conducting a survey of academic literature, indicates that some researches on green bond premium found that the yield of the green bond is lower than the yield of a conventional bond, while other studies did not support the existence of green bond yield discount (greenium or green premium). Moreover, the green bonds are associated not only with financial, but also with environmental risks (Bigger, 2017).
On the other hand, the green bond market allows investors to: (i) diversify their investments; (ii) get involved in environmental-friendly investment projects; (iii) support their investment decisions by additional (sustainability-related) information about issuers; (iv) increase exposure in less volatile instruments; and (v) achieve the desired risk-return ratio  Zerbib (2018), and others discussed the issues of green bond pricing and green bond premiums. Although the theoretical and practical issues of the bond markets are analyzed in significant number of scientific researches, the market of green bonds is relatively new, therefore, there is still a lack of a comprehensive green bond market analysis.
Despite the considerable success of the last decade, as well as other financial markets, the green bond market has been affected by the COVID-19 pandemic and its induced economic and social constraints. Deteriorating expectations and growing uncertainty in the markets inevitably affected investors' decisions. As it is stated by 52 Anh Tu et al. (2020), financial stability is one of the most important factors of the green bond market. Thus, the period of financial uncertainty caused by the COVID-19 pandemic, could have an impact on the green bond market, at least in a short term.
In the first half of the year 2020, the green bond market experienced a rapid decrease which was related to the impact of the spread of COVID-19 pandemic on financial markets and the economy as a whole (Oxford Analytica, 2020). It is stated that the pandemic affected the green bond market in at least three ways: (i) issuance of green bonds decreased sharply in March 2020 and was the lowest since the year 2015; (ii) as a consequence of bond yield volatility, decrease in risk assets and market liquidity, widened corporate spreads andthe negative effect of green bond mutual funds and ETFs was observed in March 2020; (iii) however, at the same time, the green bond market experienced a positive cash flow and increase of total assets (Sustainable Investing, 2020). The results of this research revealed that green bonds tend to exhibit asymmetrical volatility; however, their volatility is sensitive to positive shocks, which is not the case for other financial instruments. The authors also confirmed that "the green bond and equity markets have some volatility spillover effects but that neither responds significantly to negative shocks in the other market" (Park et al., 2020). Thus, it is important to analyze the reaction of the green bond market and to compare it with one of the stock market in the face of the COVID-19 pandemic.

Research methodology
Seeking to achieve the main purpose of this research, i.e. to assess the impact of the COVID-19 pandemic on the green bond market, the global green bond market is selected for further analysis. In order to get a broad picture of the global green bond market, S&P Green Bond Index, tracking the global green bond market and including only the bonds whose proceeds are used to finance environmentally friendly projects (S&P Dow Jones Indices, 2021), is analyzed. This index is selected as the broad market value-weighted index, covering green-labeled bonds from around the world, issued by multilateral, government, and corporate issuers (S&P Dow Jones Indices, 2021).
The research is organized in two steps. In the first step, the long-term and short-term trends of S&P Green Bond Index (from the perspective of market value and yield to maturity) are analyzed (Subsection 3.1). In the second step, the effect of COVID-19 on the dynamics of S&P Green Bond Index is being assessed (Subsection 3.2). The second step itself consists of two phases: (i) assessment of the impact of the COVID-19 pandemic on the global green bond market on the basis of S&P Green Bond Index market value and yield to maturity daily data; and (ii) assessment of the impact of the spread of the COVID-19 pandemic on the volatility of S&P Green Bond Index on the basis of monthly data.
Seeking to achieve the main purpose of the paper, the following hypotheses are formulated: Hypothesis 1: the spread of the COVID-19 pandemic has negatively affected the global green bond market, i.e. statistically significant negative (positive) impact on market value (yield to maturity) of S&P Green Bond Index can be observed.
Hypothesis 2: the spread of the COVID-19 pandemic has increased the volatility of S&P Green Bond Index, i.e. statistically significant positive impact can be observed.
Both hypotheses are tested using the method of correlation-regression analysis. Linear (bivariate) regression models for each pair of dependent and independent variables are constructed. Statistical characteristics of these models (t-value, p statistics) allow confirming or rejecting the hypotheses.
In order to test Hypothesis 1, the dependent variable the S&P Green Bond Index (market value and yield to maturity) is selected; as independent variables two COVI9-19 related measures are chosen: (i) percentage growth rate of COVID-19 cases confirmed per day globally; (ii) percentage growth of deaths caused by COVID-19 reported per day globally. Index data is retrieved from S&P Dow Jones Indices official database, the growth rates of COVID-19 cases and deaths are calculated by authors using the data provided in Our World in Data Coronavirus Pandemic Statistics (Coronavirus Pandemic, 2021) (daily data). Subject to data availability, the sample covers the period from 22 nd January 2020 to 8 th February 2021 and includes 273 observations.
In order to test Hypothesis 2, the monthly volatility of the S&P Green Bond Index market value is selected as dependent, and the percentage growth rates of COVID-19 cases and deaths per month are selected as independent variables. As it is the most common, volatility is measured by the standard deviation of the S&P Green Bond Index market value (percentage, per month). Using monthly data, the sample covers the period from January 2020 to December 2020 and includes 12 observations. The summary of descriptive statistics of dependent and independent variables for the models of COVID-19 impact on the global bond market is provided in Table 1.

Results and discussion
In this section, the dynamics of the S&P Green Bond Index is analyzed and the impact of the COVID-19 is evaluated.

Long and short-term trends of the global green bond market.
As it is revealed in Figure 1, which shows the long-term dynamics of S&P index market value, from the beginning of the year 2016 a sufficiently obvious positive trend was observed. This increase was accompanied by an increase in issuances and volumes in the green bond market, as it was discussed in Section 1. However, from the same figure, it can be assumed that starting with February 2020 the global green bond market experienced the largest drop during all investigated period, and the S&P Green Bond Index lost more than 7 percent of its value during two weeks in March 2020.  The results of the graphical analysis allow assuming sudden and sufficiently significant COVID-19 effect on the global green bond market, as was also noted by Xing Yi et al. (2021). Nevertheless, it is necessary to emphasize the short-term nature of this effect, as there are clear signs of market recovery after initial negative shock. Moreover, a positive trend in this market can be observed, as was also discussed by Otec Ntsama et al. (2021). Further research aims to evaluate the effect of the COVID-19 pandemic on the global green bond market quantitatively.
3.2. Assessment of the impact of the COVID-19 pandemic on the global green bond market. The results of the correlation analysis are presented in Table 2. On the basis of the results of Table 2 (correlation coefficients, t-statistics, and probabilities), it can be stated the following: (i) daily growth rates of COVID-19 cases and deaths are statistically significantly negatively (positively) related to market value (yield to maturity) of S&P Green Bond Index (moderate or week relationship); (ii) monthly growth rate of COVID-19 cases is statistically significantly related to the volatility of S&P Green Bond Index; (iii) relationship between S&P Green Bond Index and death growth rate is stronger than the relationship with cases growth rate, i.e. the market is more responsive to the mortality rather than the increase of infection cases.
To get a better view of the impact of COVID-19 on the green bond market, linear (bivariate) regression models are constructed, the results of which are presented in Tables 3 and 4.

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In Phase 1 the impact of the COVID-19 pandemic is assessed using daily market value and yield data. Based on the results in Table 3 (coefficients, t-values, p statistics) it can be stated that: (i) the daily growth of COVID-19 cases appeared to have a statistically significant negative effect on the market value of S&P Green Bond Index; (ii) the daily growth of deaths caused by COVID-19 infection also appeared to have a negative impact; (iii) not surprisingly, the inverse statistically significant effect on yield of S&P Green Bond Index was identified; (iv) market reaction to deaths proved to be stronger than the reaction to confirmed cases of COVID-19 infection. In Phase 2 the effect of COVID-19 on the volatility is assessed using monthly data. As it can be seen from Figure  3, (i) the highest volatility of the S&P Green Bond Index was observed in March, May, and July which partly coincides with the first wave of the COVID-19 pandemic (Appendixes A and B); (ii) after a sudden and significant increase in the first half of 2020, the volatility has demonstrated decreased and remained relatively low during the last months of the year 2020. Based on the results in Table 4  It is very important to emphasize that this research was based on a relatively short data series. The analysis of the impact of the pandemic in a longer-term perspective (as soon as longer data series become available) and the analysis of the impact on regional green bond markets could be directions for further research.

Conclusions
The green bonds as an innovative financial instrument not only contribute to the prevention of climate change and the protection of the environment, but are also an important catalyst for sustainable economic growth, as well as provide numerous benefits to both issuers and investors.
The global green bond market, having shown great success over the last decade, like other financial markets, has inevitably faced the consequences of the COVID-19 infection. However, in recent researches, this effect is evaluated only fragmentary.
The results of the research revealed a sudden negative shock on the global green bond market caused by the spread of the COVID-19 pandemic. However, after a sufficiently significant negative shift in terms of the market value, which was observed in the first quarter of 2020, the S&P Green Bond Index regained its upward trend, which continued for the rest of the year. Yields to maturity rose sharply over the same period, reaching a record level of 2.15 percent in March 2020.
According to the results of the research, the spread of the COVID-19 pandemic appeared to have a negative impact on the performance of the S&P Green Bond Index. The market reaction to deaths caused by COVID-19 infection proved to be stronger than the reaction to confirmed cases of COVID-19 infection.
Finally, the results of the research have shown that the spread of the COVID-19 pandemic caused the increase of uncertainty in the global green bond market, but this increase was of temporary nature.