Green Preferences: Evidence from the Greenium in Green Bonds

Abstract

We investigate whether investors are willing to forgo returns for social benefits by studying green bonds. Using a novel method, we estimate the greenium by comparing green bonds to synthetic non-green bonds constructed using yield-curves bootstrapped from the same issuer’s conventional bonds. In contrast to previous studies that likely underestimated the greenium by neglecting the green halo effect, we find an economically sizable greenium both at issuance and after trading. The greenium is larger when greenwashing concerns decrease or climate change awareness increases. Overall, our findings provide clear evidence of investors’ nonpecuniary preferences for green assets.

Keywords: ESG investing, nonpecuniary preferences, green bonds, greenium,

JEL Classification: G12, G14, G20