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

Abstract

This paper provides an in-depth analysis of the green bond premium, so-called Greenium, using both, primary and secondary market data. We consider a large sample of over 2,000 green bonds issued worldwide and estimate the differences in yields of green and comparable conventional bonds. Our primary market results reveal a significantly negative premium of 20--30 bps for green bonds, implying that at issuance, green bonds are trading at higher prices than their conventional counterparts. This premium, however, varies across currencies and issuer types. In particular, credibility plays an important role as bonds backed by a collateral or issued by more credible entities are issued at lower yields. Using secondary markets data we find higher differences in yields for bonds with shorter time to maturity and larger issue sizes. Remarkably, bonds listed on exchanges with a dedicated green bond segment are traded at 20 bps lower yields, on average, pointing out the importance of transparency and clear standards for the growth of the green bonds market.

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

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