(In)-Credibly Green: Which Bonds Trade at a Green Bond Premium?

Abstract

The most important determinant for the existence of a Green premium is the perceived "Green--credibility" of a bond and its issuer. We analyze a sample of more than 1,500 Green bonds with respect to their pricing on the primary and secondary market. On both markets, only certain types of bonds trade at a Green premium (i.e., exhibit lower yields) relative to their conventional counterparts, namely those, which are issued by governments or supranational entities, denominated in EUR, or corporate bonds with very large issue sizes. These bonds and their issuers seem to be viewed as more credible in terms of a better implementation or a greater impact of the Green projects financed with the proceeds. For corporate issues, credibility of the Green label is of particular importance. Investors are more likely to pay a premium for a Green bond, when it is certified as such by a third party, or when it is listed on an exchange with a dedicated Green bond segment and tight listing requirements.

Keywords: Green Bonds, Sustainable Investing, Green Premium, Impact Investing

JEL Classification: C33, G12, G14, G20, Q56