Green bonds versus conventional bonds: is there a differentiated demand in Mexico?

Abstract

Is the demand for green bonds different from the demand for conventional bonds? Previous analysis that compare financial returns between green and conventional bonds (Asian Bond Monitor, 2018; Ehlers and Packer, 2017; Reboredo, Quintela y Otero, 2017; Östlund, 2015, and Zerbib, 2016, 2019) show, in most cases, that green bonds have a lower return than conventional bonds. No study comparing such bonds has yet been done for Mexico.

This study aims to close such gap, intending to identify if investors have a differentiated demand for green bonds with respect to comparable conventional bonds. Contrary to previous analysis that compare observed returns, we use the ask prices for green and conventional bonds issued either on the same date or with the same maturity by the same institution. The results suggest that the distribution on ask prices differ between green and conventional bonds. Additionally, there is a negative difference in their mean returns for bonds with the same maturity.