| The Chinese government is fully aware of the tremendous negative impact of carbon emissions and the resulting climate change on human survival and development,and has actively set visionary goals to address climate change.in September 2020,President Xi Jinping pledged at the 75 th UN General Assembly general debate that China’s CO2 emissions strive to peak by 2030 and become carbon neutral by 2060.This is both a commitment to the world and a basis for China to develop future policies and regulations related to carbon emission reduction and other related policies.In the context of carbon neutrality,according to the "Green Finance Roadmap Study under the Vision of Carbon Neutrality" and various research institutions’ estimation,the cumulative requirement of low-carbon green field investment in China in the next twenty years will reach more than three hundred trillion RMB,then incentivizing market capital investment is an effective way to solve the capital gap.The incentive role of the green investment and financing market may have been underestimated in recent years.First,climate change will have a substantial impact on the value of financial assets,and bonds,as an emerging fixed-income investment and financing tool to support environmental protection and mitigate climate damage,regulators are now also issuing more policies and guidance to encourage the securities market to support green investments and promote the development of green bonds,etc.So,can the financial market guide the optimal allocation of green resources through price signals,i.e.,is there a green incentive? Thus,it can reduce the cost of emission reduction of the whole society,promote the investment in green and lowcarbon industries,and guide the flow of capital.Second,green finance in a broad sense still returns to the issue of pricing in the financial market,in other words,how do financial markets quantify the climate risks associated with greenhouse gas emissions and the resulting social costs? How can we financially incentivize various actors to invest and finance green projects,as well as incentivize the achievement of comprehensive corporate sustainable development? Third,how can bonds,as a key financial instrument that translates the "environmental premium" into an asset premium,provide incentive evidence for low-carbon economic transformation and resource allocation efficiency?Based on the above research questions,the theoretical and empirical research is carried out based on the principle of expanding the connotation and extension of green incentives,in accordance with the following three main lines: polluting carbon emission shadow-corporate green transformation action-comprehensive sustainable development of enterprises,and under the conceptual framework of green incentives.The study analyzes whether the bond market can give positive green incentive effect to each participant through asset price effect or financial return signal.The specific research contents and main findings include the following three aspects.(1)For the study of polluting carbon emissions,in order to realize President Xi Jinping’s commitment of "carbon peaking by 2030 and carbon neutrality by 2060",cities are important spaces and action units for promoting low-carbon economic transformation.The municipal bond market provides a good "experiment" to study how investors can focus on and quantify the climate risk and financial asset price risk associated with CO2 emissions.The study finds that after controlling for a range of other factors and city and time fixed effects,the intensity of urban carbon emissions is positively correlated with secondary market credit spreads on municipal bonds,and this effect is significant across different types of sectors.This paper uses the lowcarbon pilot city policy as an exogenous event shock to carbon emissions.The lowcarbon city pilot is an important environmental reform closely related to ecological civilization and people’s well-being launched in China since 2010,and the results remain robust after mitigating potential endogeneity problems using this policy as an instrumental variable.Mechanistic tests show that urban carbon emissions act on municipal bond credit spreads through the transition risk and physical risk mechanisms,the punitive credit rate mechanism,and the asset stranding mechanism that firms will act upon in the face of carbon reduction regulatory measures.Further studies show that cities’ technological innovation in energy-intensive industries and government efforts in curbing greenhouse gas emissions and environmental management can reduce the extent of carbon risk on municipal bond credit spreads at the margin.(2)At the level of corporate green transformation and action,the evidence on the correlation between environmental management performance and credit risk,as well as the theoretical mechanisms and economic logic behind it,is further explored in depth by cutting through the perspective of bonds as green project financing.Given that China has a large bond market that is not clearly identified as green bonds,but raises funds for green industries,this paper conducts a study based on the disclosure data of CMB "Substantial Green" bond issues.The study finds that a green pitch premium for bonds driven by investors’ green preferences is significantly present and remains robust by using a matching approach.Heterogeneity analysis reveals that the green pitch premium varies by bond maturity,trading venue,and industry of the bond issuer.When including a sample of officially labeled green bonds,this paper isolates the green label premium from their significant presence of regulatory approval,but the third-party certification premium effect is not present.Further exploring the driving mechanism of the green pitch premium reveals that there is a significant positive relationship between the proportion of funds raised by a single bond invested in green projects,the environmental benefits generated by the bond itself and the green pitch premium of the bond,filling a gap in the previous empirical literature.(3)In terms of corporate achievement of comprehensive sustainable development,this paper analyzes the impact of corporate environmental,social and governance(ESG)quality on bond pricing using bond transaction data from 2011 to2020.It is found that higher ESG performance reduces the credit spreads of bonds issued by companies;specifically,one standard deviation improvement in a company’s ESG rating will reduce bond credit spreads by about 28 BP.further,by decomposing credit spreads,it is found that ESG rating is significantly negatively related to bond default spreads and has no significant effect on liquidity spreads.Heterogeneity analysis shows that ESG performance has a stronger effect on bond credit spread reduction for bonds issued by long-dated bonds,state-owned enterprises and managers with long-termist companies.This paper uses the State Council’s approval of a pilot green finance reform and innovation pilot zone in 2017 as a quasinatural experiment to address the endogeneity issue,and the results remain relatively robust.The mechanism analysis finds that corporate ESG quality mitigates default risk mainly through the "operational stability mechanism" and "idiosyncratic risk mechanism".Finally,it is found that ESG performance reduces credit spreads more significantly in times of rising economic policy uncertainty and after the Paris Agreement.In summary,the paper’s possible innovations are threefold: first,based on the Chinese context,this paper adds to the literature on the impact of carbon performance on financial asset prices,and its empirical findings will help measure the social cost of carbon emissions,incentivize cities to provide financial support for carbon emission reduction,and also provide a reference anchor for setting carbon prices.Secondly,the overall study of this paper shows that Chinese bond market investors have the ability to distinguish green efficiency differences,the green investment premium of a single bond can well highlight the unique advantages brought by environmental benefits,and the green incentive effect exists for firms in terms of pricing accuracy,making up for the lack of research in this area of literature.The final paper focuses on the findings that green finance reforms incentivize firms to improve their ESG performance,and investors integrate ESG issues into their investment decisions and view them as part of the bond asset price,incentivizing sound long-term business sense.This paper provides a number of policy implications for strengthening incentives for green investment and financing,supporting green transformation and high-quality economic development,and ultimately achieving the "double carbon" goal. |
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