(In)-Credibly Green: Which Bonds Trade at a Green Bond Premium?

Abstract

The most important determinant for the existence of a Green premium is the perceived ``Green--credibility'' of the corresponding bond and its issuer. We analyze a large sample of more than 1,500 Green bonds with respect to their pricing on the primary and secondary market. On both markets, only certain types of Green bonds trade at a Green premium (i.e., exhibit lower yields) relative to their conventional counterparts, namely those, which are issued by governments or supranational entities, denominated in EUR or USD, or corporate bonds with very large issue sizes. These bonds and their issuers might be viewed as more credible in terms of a better implementation or a greater impact of the financed Green project. For corporate issues, credibility of the Green label reveals to be of particular importance. Investors are more likely to consider a corporate bond as Green, i.e., be willing to pay a premium for it, when the bond is certified as such by a third party, or when the bond is listed on an exchange with a dedicated Green bond segment and tight listing requirements.