Estimates suggest that mitigating and adapting to climate change will cost trillions of
dollars. We study green bonds, which are bonds whose proceeds are used for
environmentally sensitive purposes. After an overview of the U.S. corporate and
municipal green bonds markets, we study pricing and ownership patterns using a simple
framework that incorporates assets with nonpecuniary utility. As predicted, we find that
green municipal bonds are issued at a premium to otherwise similar ordinary bonds. We
also confirm that green bonds, particularly small or essentially riskless ones, are more
closely held than ordinary bonds. These pricing and ownership effects are strongest for
bonds that are externally certified as green.