A greenium for the next generation EU green bonds: Analysis of a potential green bond premium and its drivers

Isabelle Cathérine Hinsche

No 663, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: As part of the Next Generation EU (NGEU) program, the European Commission has pledged to issue up to EUR 250 billion of the NGEU bonds as green bonds, in order to confirm their commitment to sustainable finance and to support the transition towards a greener Europe. Thereby, the EU is not only entering the green bond market, but also set to become one of the biggest green bond issuers. Consequently, financial market participants are eager to know what to expect from the EU as a new green bond issuer and whether a negative green bond premium, a so-called Greenium, can be expected for the NGEU green bonds. This research paper formulates an expectation in regards to a potential Greenium for the NGEU green bonds, by conducting an interview with 15 sustainable finance experts and analyzing the public green bond market from September 2014 until June 2021, with respect to a potential green bond premium and its underlying drivers. The regression results confirm the existence of a significant Greenium (-0.7 bps) in the public green bond market and that the Greenium increases for supranational issuers with AAA rating, such as the EU. Moreover, the green bond premium is influenced by issuer sector and credit rating, but issue size and modified duration have no significant effect. Overall, the evaluated expert interviews and regression analysis lead to an expected Greenium for the NGEU green bonds of up to -4 bps, with the potential to further increase in the secondary market.

Keywords: Sustainable Finance; Green Bonds; Greenium; Next Generation EU; EU Bonds; Environmental; Social and Governance (ESG); Sustainable Investing; Green Finance (search for similar items in EconPapers)
JEL-codes: C23 G12 G14 G21 G23 G28 Q56 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-eec, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:663

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