A Greenium for the Next Generation EU Green Bonds Analysis of a Potential Green Bond Premium and its Drivers

Center for Financial Studies Working Paper No. 663, 20201

73 Pages Posted:

See all articles by Isabelle Cathérine Hinsche

Isabelle Cathérine Hinsche

Goethe University Frankfurt - Faculty of Economics and Business Administration

Date Written: August 21, 2021

Abstract

As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe.
Thereby, the EU is not only entering the green bond market, but also set to become one of the
biggest green bond issuers. Consequently, financial market participants are eager to know what
to expect from the EU as a new green bond issuer and whether a negative green bond premium,
a so-called Greenium, can be expected for the NGEU green bonds. This research paper
formulates an expectation in regards to a potential Greenium for the NGEU green bonds, by
conducting an interview with 15 sustainable finance experts and analyzing the public green
bond market from September 2014 until June 2021, with respect to a potential green bond
premium and its underlying drivers. The regression results confirm the existence of a
significant Greenium (-0.7 bps) in the public green bond market and that the Greenium
increases for supranational issuers with AAA rating, such as the EU. Moreover, the green bond
premium is influenced by issuer sector and credit rating, but issue size and modified duration
have no significant effect. Overall, the evaluated expert interviews and regression analysis lead
to an expected Greenium for the NGEU green bonds of up to -4 bps, with the potential to
further increase in the secondary market.

Keywords: C23, G12, G14, G21, G23, G28, Q56

JEL Classification: Sustainable Finance, Green Bonds, Greenium, Next Generation EU, EU Bonds, Environmental, Social and

Suggested Citation

Hinsche, Isabelle Cathérine, A Greenium for the Next Generation EU Green Bonds Analysis of a Potential Green Bond Premium and its Drivers (August 21, 2021). Center for Financial Studies Working Paper No. 663, 20201, Available at SSRN: https://ssrn.com/abstract=

Isabelle Cathérine Hinsche (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

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