N°23-33: The Role of External Reviews in the Corporate Green Bond Process

We examine the role of external reviews during the two main phases of the corporate green bond process: pre- and at issuance (Phase 1) and post-issuance (Phase 2). For Phase 1, we find "high environmental performers" are more likely to obtain a secondparty opinion or certification from ESG specialists rather than rating agencies or other providers, with the specialists generally having a more technical approach. This is consistent with auditing literature that shows companies with higher-quality sustainability reports are assured by auditors with technical competence. Interviews with practitioners confirm different benefits related to engaging "generalists" (such as rating agencies or Big-4 auditors) versus "ESG specialists" in the green bond context. Further analyses reveal that the likelihood of obtaining external reviews increases for "high environmental performers" in common-law countries and Europe but for "poor environmental performers" in Asian countries. For Phase 2, we use a self-developed disclosure index validated by automated text analyses and find that green bond reports with external reviews exhibit higher disclosure quality in general but not for items on which preparers' judgment is more subjective, which makes the items harder to verify. Our results suggest the monitoring role of external reviews in the green bond process varies between the two phases and is shaped by significant differences in the types of providers, as well as by region.