Looking at the European market: Does the greenium exist? And if so, do it apply uniformly across different industries?

Abstract

The green bond market has emerged as a significant funding source to address the challenges posed by climate change. Researchers have identified a phenomenon known as the "green premium" or "greenium". Green bonds trade at a premium because they are in high demand, and as a result, investors accept a lower return. By examining the yield of green bonds in relation to comparable conventional bonds, we can assess the existence of a premium. Furthermore, we will explore variations in the greenium across different businesses and sectors. Over the period from 2012 to 2022, we will construct a European panel comprising both traditional and green corporate bonds, utilizing bond-level data sourced from Refinitiv. In order to examine the data, we will run fixed-effects regressions on an unbalanced panel of corporate bonds, using the bond’s issue yield spread as the dependent variable. This research is motivated by our interest in the expansive and significant topic of green finance.

In our study, we find that the presence of a greenium in the total sample of green bonds is not statistically significant, suggesting no clear evidence of its existence. However, our analysis reveals the potential reemergence of the greenium when examining different industries, with significant results indicating variations in the premium across sectors. Keywords