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Objective: This study examined the responses of banking investors to the first-time issuance of sovereign green bonds (SGBs) in the context of the Indian economy, one of the largest emerging economies. A critical nexus exists between financial systems and sustainability-related initiatives, particularly in emerging economies. India issued its first sovereign green bond on 25 January 2023. This study investigates the effect of SGB issuances on banking investors.
Design/Methodology: Daily stock prices of 36 listed banks were collected over 203 trading days to calculate abnormal returns. This study uses the event study method to analyse the effect of the first SGB issuance. A cross-sectional regression was applied to firm-specific data.
Results: The event study results indicate that, overall, bank stocks have experienced a significant cumulative negative impact. However, private sector banks exhibited the highest responsiveness to the event, as demonstrated by the magnitude and statistical significance of abnormal returns. Further regression analysis reveals that larger size and enhanced capital adequacy consistently improve banks’ cumulative abnormal returns, suggesting that banking investors prioritise financial robustness over ESG performance in short-term market responses.
Theoretical and practical implications: Indian banking investors acknowledge the presence of SGBs; however, they appear to exhibit a lower propensity towards these instruments compared to alternative options. For emerging economies, such as India, the implementation of a standardised reporting framework for sustainable finance instruments, including green bonds, is crucial for enhancing investor confidence and ensuring market transparency.
