Investors have been reallocating their capital toward sustainable investments and green assets as a new investment strategy. However, a fundamental question still remains: are fixed-income investors willing to accept lower returns when investing in green assets, and what driver this capital shift?
This report delves into the concept of "greenium" and its determinants. Using post-issuance data from the European corporate bond markets spanning from January 2018 to October 2023, I empirically investigate the presence of green bond premia and the factors driving this premium, with a specific focus on external reviews and the dynamics of Use of Proceeds. The findings reveal that, on average, green bonds exhibit an 8.1 basis points lower yield compared to their matched non-green counterparts. Moreover, reviewed green bonds demonstrate a pricing advantage over standard green bonds. Additionally, green bonds allocated towards Climate Change Adaptation and Eligible Green projects display more pronounced green bond premia, indicating investor preference for bonds financing these environmentally impactful initiative
