Green bonds & certification: is getting certified always optimal?

In this paper, we focus on the certification cost for green bonds to understand the decision rationale of an issuer in regard to applying for a certification. We find that if this cost is null, requesting a certification is always optimal for the issuer, regardless of the outcome of the process. However, with a strictly positive cost, we show the existence of a threshold above which the certification cost becomes too high and applying for a certification is no longer optimal. This threshold depends on the distribution of the prior belief of potential buyers about the issuer’s commitment to its “green” claim before the issuance announcement and the certification process. We find that the more positive this prior belief is, the lower the threshold is.