The Economics of the Greenium: How Much is the World Willing to Pay to Save the Earth?

Peter Lau (), Angela Sze (), Wilson Wan () and Alfred Wong ()
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Peter Lau: Hong Kong Monetary Authority
Angela Sze: Hong Kong Monetary Authority
Wilson Wan: Hong Kong Monetary Authority
Alfred Wong: Hong Kong Monetary Authority

Environmental & Resource Economics, 2022, vol. 81, issue 2, No 7, 379-408

Abstract: Abstract Sadly, not much. This paper provides a theoretical and empirical analysis of the greenium, the price premium the investor pays for green bonds over conventional bonds. We explain in simple economic terms why the price premium of a green bond essentially represents a combination of the non-pecuniary environmental benefit of the bond, as perceived by the investor, and the effective cost of issuing it, as measured by the additional issuing costs of the bond netted off a range of monetary and non-monetary benefits associated with the issuance. Our empirical model decomposes the greenium into a time-varying market component which is common to all green bonds and an idiosyncratic component which is specific to a certain green bond itself. Using the largest global green bond dataset compared to any previous studies, we find that the greenium on average amounts to, sadly, just over one basis point. However, it varies quite significantly among individual green bonds and our result suggests that a key factor underlying the variation is that they are subject to the risk of greenwashing to different extents.

Keywords: Greenium; Green bonds; Greenwashing; Time-varying market component; Idiosyncratic component (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s10640-021-00630-5

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