Uncovering the greenium: Investigating the yield spread between green and conventional bonds


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Green bonds are an increasingly used instrument to catalyze cash flows towards a low-carbon economy. Nonetheless, the existence of an actual price advantage is still uncertain. This research paper aims to assess whether there is a green bond premium (“greenium”) for green bonds relative to conventional bonds with similar characteristics, and how liquidity may affect the determination of a price advantage. It analyzes the yield differentials between green and conventional bonds using three different methods. First, a Nelson-Siegel-Svensson method is executed, estimating the premium both as the yield spreads and as the differentials in Z-spreads. Using a matching method and creating a sample of green and synthetic conventional bonds, the second methodology consists in calculating the distances between each categories’ yield for the same duration. Finally, a fixed-effect regression is performed to better control the liquidity bias. In the first case, a positive premium emerges when analyzing the yield spreads (+37.89 basis points) and the Z-spreads (+10.62 basis points). The second method mitigates the liquidity risk by creating a sample of synthetic bonds and reveals a yield spread of –15.89 basis points. Lastly, the regression method shows a negative greenium equal to –17.1487 basis points. Thus, a greenium emerges from all the three different methods, but its nature, sign, and real determinants are still uncertain. It is, therefore, not possible to conclude a definite price advantage for issuers of green bonds.

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    • Figure 1. Collateral type distribution
    • Figure 2. Sample distribution by number of bonds of issued volumes in million EUR
    • Figure 3. Sample distribution of rating classes by number of bonds and total issued amount
    • Figure 4. Sample distribution of sectors for the number of issuers
    • Figure 5. Nelson-Siegel-Svensson method: Yield spread differentials
    • Figure 6. Nelson-Siegel-Svensson method: Z-spread differentials
    • Figure 7. Yield spread method: Yield distribution
    • Table 1. Main features of green bonds
    • Table 2. Statistics of conventional bonds
    • Table 3. Data sample statistics
    • Table 4. Panel regression method: Statistics of the variables
    • Table 5. Panel regression method: Statistics of the greenium
    • Conceptualization
      Paola Fandella
    • Data curation
      Paola Fandella, Valentina Cociancich
    • Formal Analysis
      Paola Fandella, Valentina Cociancich
    • Methodology
      Paola Fandella
    • Project administration
      Paola Fandella, Valentina Cociancich
    • Supervision
      Paola Fandella
    • Writing – original draft
      Paola Fandella, Valentina Cociancich
    • Writing – review & editing
      Paola Fandella
    • Funding acquisition
      Valentina Cociancich
    • Investigation
      Valentina Cociancich
    • Software
      Valentina Cociancich