Facts and Fantasies about the Green Bond Premium

The green bond market has increased exponentially since the first issuance in 2007. Nevertheless, we continue to observe a large imbalance between supply and demand because of the huge appetite from institutional ESG investors. The purpose of this study is then to determine if green bonds present lower yields than conventional bonds in the secondary market. This yield difference is known as the green bond premium or greenium.

From the issuer’s point of view, a green bond issuance is more expensive than a conventional issuance due to the need for external review, regular reporting and impact assessments. From the investor’s point of view, there is no fundamental difference between a green bond and a conventional bond, meaning that one should consider a negative green bond premium as a market anomaly.

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