**1. Introduction**

Since the beginning of the century, the world has been consistently growing at around 3%, without following a sustainable path. The past decade (2010–2020) has been marked by rising environmental awareness and demand for the promotion of renewable energy sources. Alarming reports from the Intergovernmental Panel on Climate Change have shown that climate change is a pressing matter that needs to be addressed, and in 2015, United Nations members agreed on keeping global warming below 2 ◦C through Nationally Determined Contributions. The United Nations also acknowledged the matter by including 'Climate Action' in the Sustainable Development Goals (SDGs). Yet, the Intergovernmental Panel on Climate Change and the United Nations Environment Program reports highlight that further actions need to be taken to reach this goal and fulfill the SDGs. Several SDGs are directly and indirectly related to green and low-carbon energy developments and the environment. SDG 7 (affordable and clean energy) and SDG13 (climate action) are directly related. SDG3 (good health and well-being), SDG14 (life below water), and SDG15 (life on land) are indirectly related. This means that the UN global agenda clarified the importance of green energy and reducing pollutions (CO2 or NOx).

**Citation:** Taghizadeh-Hesary, F.; Yoshino, N.; Phoumin, H. Analyzing the Characteristics of Green Bond Markets to Facilitate Green Finance in the Post-COVID-19 World. *Sustainability* **2021**, *13*, 5719. https://doi.org/10.3390/su13105719

Academic Editor: Chia-Lin Chang

Received: 7 April 2021 Accepted: 9 May 2021 Published: 20 May 2021

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One of the biggest barriers in the development of renewable energy is the low level of investment [1]. As of 2018, the majority of the world's investment in energy still went to carbon-emitting sources—fossil fuels. For instance, while 39% of investments in power supply generation went to renewable energy, they only represented 19% of total investments in the energy sector [2]. In comparison, fossil fuels received about 60% of total investments in the same year [2], with the remainder going to nuclear, biofuels, or battery storage, which are still, to a lesser extent, sources of greenhouse gas (GHG) emissions.

In 2020–2021 due to the COVID-19 pandemic and the global economic recession, the ongoing investment in renewable power, energy efficiency, and other green projects fell drastically. The COVID-19 pandemic and the economic downturns resulted in a drastic reduction in fossil fuel prices. Low fossil fuel price is harmful to developing renewable energy projects, making solar, wind, and other renewable energy resources less competitive electricity sources. This reduces investors' interest in clean fuels that would threaten the Paris Agreement on climate change and several SDGs.

Funding green infrastructure projects remains an issue. In general, these projects require large borrowings, as they are capital-intensive [3]. In addition, green projects are usually associated with 'high risk and low returns at the initial research and development stage' [4]. Difficulties in accessing finance for green projects is especially the case in Asia, whose financial sector is dominated by banks; hence, banks are the main source of funding [1]. Venture capitalists are scarce in Asia, including East and Southeast Asia [3], although they are more likely to provide funds for green projects, while banks generally deem green projects risky [4]. In addition to risk overvaluation, the authors of [5] highlighted the existence of a maturity mismatch between bank loans, which are generally short-term, and green projects, which are thought to be medium- to long-term projects. Thus, banks are not usually well-suited to providing loans for green projects. Second-level financial institutions (e.g., insurance or pension funds) may provide funds for longer-term projects as they hold long-term money but are reluctant to invest in electricity projects whose tariffs are generally regulated by the public sector [5]. Overall, traditional finance is failing to provide enough funding for green projects, so there is a need for innovative finance or the establishment of a green financial system to fill this gap. Introducing new financial instruments such as green bonds besides the conventional banking system will help fill the green finance gap required to achieve the related SDGs.

This research aims at analyzing green bonds—a special type of green finance instrument and an essential part of the green financial system.

Green bonds are fixed-income securities whose popularity has increased significantly in the past few years. While their definition varies, they are usually understood as a form of debt instrument used to finance green projects, such as renewable energy infrastructure or projects that comprise an energy efficiency dimension. The Asia and the Pacific regions have been increasing the use of this instrument to bridge the gap between infrastructure projects and access to financing. In 2018, Asia and the Pacific achieved the highest regional growth of green bond issuance, with an annual rate of 35% [6]. The region has consistently been the second-largest issuer of green bonds by volume since 2016 and accounts for the most diverse pool of issuers in the world, with 345 different institutions [7]. While this new instrument may be favored in Asia, one cannot help but wonder how the peculiar nature of the Asian financial sector, which is dominated by traditional forms of banking, may affect the characteristics of green bonds issued in the region, in terms of associated returns and risks. The recent literature on the topic has shown that green bonds tend to show lower returns than their conventional counterparts [8–11]. The lower return of the green bonds is due to their intrinsic characteristics. Green bonds are financial instruments designed to fund green infrastructure and green technologies. Green technologies and generally green projects (such as renewable energy technologies) are often earlier in the development stage and not always commercially viable compared to the brown projects (such as fossil fuel-based energy projects) field, where many of them date back to 100 years ago [12,13]. This makes green technologies more expensive and riskier ventures. As a

result, the rate of return of green bonds is expected to lower compared to conventional bonds. In addition to this, other reasons make green projects more expensive. According to the OECD Companion to the Inventory of Support Measures for Fossil Fuels 2015, the production or consumption of fossil fuels is supported by almost 800 individual policies [14]. Another form of subsidy, an indirect one, takes place when fossil fuel companies are not taxed efficiently [15].

Refer. [16,17] showed that the green bond market was more volatile and hence riskier than the conventional bond market. However, the studies mentioned above conducted global analyses of green bonds, even though issuers' regional characteristics may play a crucial role in determining the risks and returns of these instruments.

There are several reasons behind the hypothesis that the characteristics of green bonds may depend on the region of issuance. First, economic theory and empirical research confirm that the performance of fixed-income instruments is highly dependent on macroeconomic variables such as changes in financial markets, economic uncertainty, or daily economic activity [18]. Therefore, it is likely that the performance and associated risks of green bonds vary depending on the region's economic activity or the investors' uncertainty evaluation and risk aversion. A second rationale for this hypothesis comes from the difference in the inherent characteristics of financial markets, based on the region, as previously explained. The research questions of this study are (i) how do green bonds in Asia compare in terms of size and time to maturity with green bonds issued in other regions? Do they differ because of the characteristics of Asian financial markets? (ii) In terms of return and risk, how do green bonds in Asia compare with green bonds from the rest of the world? (iii) Does the type of issuer affect the performance of the bond? In particular, does the influence of the issuer depend on the region?

This research aims to fill the gap in the literature by conducting a comparative study of the characteristics of green bonds, based on the region. In particular, we seek to determine whether the domination of traditional banking has an impact on the return of green bonds issued in Asia and the Pacific.

The study is organized as follows: Section 2 presents a literature review, which discusses green finance and recent academic debates related to green bonds. Section 3 introduces the dataset used in this study and discusses our methodology. Section 4 shows the empirical results of this research, and Section 5 concludes this paper and provides policy recommendations.
