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The Green Corporate Bond Issuance Premium

John Caramichael and Andreas Rapp

No 1346, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study a global panel of green and conventional bonds to assess the borrowing cost advantage at issuance for green bond issuers. We find that, on average, green bonds have a yield spread that is 8 basis points lower relative to conventional bonds. This borrowing cost advantage, or greenium, emerges as of 2019 and coincides with the growth of the sustainable asset management industry following EU regulation. Within this context, we find that the greenium is linked to two proxies of demand pressure, bond oversubscription and bond index inclusion. Moreover, while green bond governance appears to matter for the greenium, the credibility of the underlying projects does not have a significant impact. Instead, the greenium is unevenly distributed to large, investment-grade issuers, primarily within the banking sector and developed economies. These findings have implications for the role of green bonds in incentivizing meaningful green investments throughout the global economy.

Keywords: Green bonds; Corporate bonds; Green finance; Sustainable finance; Climate finance; Green bond premium; Bond issuance (search for similar items in EconPapers)
JEL-codes: C33 G15 G18 G23 G28 Q54 Q56 (search for similar items in EconPapers)
Date: 2022-06-02
New Economics Papers: this item is included in nep-ene, nep-env and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1346

DOI: 10.17016/IFDP.2022.1346

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