What is Green Bond Premium

This study provides an empirical analysis on the existence of a green bond premium on the secondary market. The green bond premium is defined as the yield differential between a green and a comparable brown bond, while controlling for liquidity. The EUR-denominated green bonds are studied to determine if they diverge from comparable conventional bonds in terms of yields, during the period from January 2018 to December 2020. Through a matching method, a sample composed of 35 bond couples is obtained. On average, this study reports a negative greenium of -3.20 bps within the sample. The greenium differs across the sub-samples, being negative for green bonds issued by financial institutions, in domestic currency, by AA- and A-rated issuers, and for those issued by issuers with low or medium ESG risk levels. Finally, the ESG risk level has been found to be the driver of the negative green bond premium.