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Stefano Gatti and Andrea Florio

The green bonds market has experienced an exceptional growth since inception in June 2007 and, as of September 2015, accounted for roughly USD72 billion. The expansion has been fuelled by investors and issuers’ demand for increasing standardization and continuous innovation. This chapter investigates the impact of these developments on the evolution of the market and, in particular, on the cost borne by issuers of green bonds (as measured by the issue spread). Green bonds issued from June 2007 to 10 September 2015 (i.e., 417 observations) are considered in order to answer whether the issue spreads have been affected by the introduction of the Green Bond Principles in January 2014 and by the adoption of second party reviews. Our empirical findings lead to two main conclusions: (1) the introduction of the Green Bond Principles was pivotal for bonds with worse credit ratings to be able to enter the market; (2) green bonds accompanied by a second party review are, on average, issued at a lower spread than those without one.