We examine the resilience of green bonds to the COVID-19 shock through the lens of institutional investors’ holdings. We show that the green label has a positive impact on bond holdings both in normal times and during the COVID crisis. Moreover, during the pandemic outbreak, green bonds experienced lower net sales, on average, than equivalent conventional bonds, while no significant differences emerge in normal times. The results hold across different investor classes, including mutual funds exposed to large outflows, and are not driven by issuers’ fundamentals. We also document that the ownership of green fixed income securities is more concentrated than that of comparable conventional bonds, and that concentration has increased in the first quarter of 2020. JEL Classification: G01, G11, G23

Combining a rich database on natural hazards, granular flood hazard maps and detailed information on firm geolocalization, we study the dynamic effects of floods on European manufacturing firms over the period 2007-2018. We find that water damages significantly and persistently worsen firms’ performance, and may endanger their survival. An average flood deteriorates total assets by about 2% in the year after the event, and up to 5% seven years out. Repeated flooding has milder impacts, suggesting that adaptation measures are adopted in flood-prone areas. We show how reallocation of economic activity within flooded regions can reconcile our results with the “creative destruction” hypothesis for natural disasters.

The financial system plays a major role in the transition to a low-carbon economy. We shed light on this analyzing recent developments in the bond and debt markets. First, we study the pricing of green bonds at issuance. We find a premium for green bonds issued by supranational institutions and corporates but no yield differences in case of issuances by financial institutions. We also document an effect for external review and repeated access to the green bond market. Second, we show that banks that issue green bonds reduce lending towards carbon-intensive sectors, but limited to the loan amounts granted in the role of lead bank in the deal. This mixed evidence about lending suggests that, at the time of issuance, investors may not be able to identify a clear link between the green bond issued by a financial institution and a specific green investment project, which would explain the absence of a green premium for financial issuers.

This study investigates the effects on risk and financial stability of the taxes on bank liabilities introduced across European countries after the global financial crisis. Using a difference-in-differences setup, we show that banks responded to the implementation of liability taxes by reducing their interbank exposure, and by increasing both equity, at least in the short term, and the risk weight of their assets. When we consider these adjustments in a microsimulation model for bank portfolio losses, we find that liability taxes reduce risk in the banking sector and could therefore decrease the cost of crises.