What drives the performance and causality of green bond indices?

This paper empirically assesses the performance of green bond indices and the causality of that performance using a range of financial and commodity data. We present new insights from the novel application of datasets, neural networks and performance measurements. We find that green bond indices do not outperform the market when factors beyond market return are considered. We find that Brent crude oil has the most significant effect on certain indices, a finding that contrasts with other studies on green bonds. A greater sensitivity to oil prices and global green equities also evinces a negative impact on a green bond index's ability to outperform the market. For the first time, a linear causal relationship is established between Title Transfer Facility (TTF) returns and green bond index returns. Additionally, a fundamental shift in causal relationships is observed over the COVID-19 period. In this way, we contribute to the literature on sustainable green bonds and the impact of COVID-19. These insights provide more clarity to market participants for navigating the uncertainties of both the global energy transition and the postpandemic period.