Greenium

If investors are willing to pay more for green bonds because of strong demand from sustainability-focused funds, the issuer can borrow slightly more cheaply through a green bond than through an ordinary bond with the same maturity and credit risk.

For example, if a government’s ten-year conventional bond yields 3.50% and its ten-year green bond yields 3.47%, the greenium is about 0.03 percentage points, or 3 basis points.

Studies have generally found that greeniums exist but are small, often just a few basis points, and that they vary over time, by issuer and by market. In some cases, there is no measurable greenium.

The greenium is important because it affects whether issuing green bonds is financially attractive. Even a small greenium can encourage issuers to finance more green projects, although issuers also face extra costs for reporting and external reviews. For investors, a greenium means accepting a slightly lower return in exchange for funding environmental projects. Greeniums tend to be larger when demand for green bonds exceeds supply.