Why does the Norwegian bond market issue so few green bonds? : a comparative study of the Norwegian and Swedish green bond markets

To uncover the underlying reasons why the Norwegian bond market issues so few green bonds, the thesis contains two objectives. The first objective is to analyze the performance of green bonds in the primary and secondary Norwegian and Swedish bond markets, while the second objective is to study the motives of investors and issuers. Concerning the first objective, the primary green bond markets does not indicate a greenium. Therefore, we base the analysis of green bond performance in Norway and Sweden, on the secondary market. The thesis examines the green bond yield premium by matching 13 Norwegian and 88 Swedish green bonds, from 2015 to 2019, with constructed synthetic bonds. A two-step regression procedure exhibits a green bond yield premium of -0.8 bps in total for the entire sample, -1.2 bps for Sweden, and 1.7 bps for Norway. There is, therefore, a yield discrepancy which creates a disincentive for Norwegian issuers of green bonds. Furthermore, the results demonstrate that the main determinants of the green bond yield premium are country, greenness, sector, issue amount, and coupon type. The second objective investigates the motives of market professionals, through a survey and in-depth interviews, and support the findings of a tighter credit spread in the Swedish market. Our findings suggest that this is due to the history and composition of the bond market in Norway, leading to less sustainable focus. These factors negatively impacts the supply and especially demand of green bonds in the Norwegian market. Therefore, the Norwegian issuers experience direct and indirectly negative incentives in terms of a higher borrowing cost and lower moral benefits. However, the green bond market is expected to grow in both countries and the green bond volume discrepancy between Norway and Sweden is likely to reduce in the future. Keywords – NHH, Master Thesis, Finans|Bergen, Green Bonds, Liquidity, Sustainabilit