Green Bond Premium in the Primary Market: A Comprehensive Study of Greenium and its Determinants in the Primary Market

Nichita Stefaniuc & Fredrik Thörning

Student thesis: Master thesis


The first green bond was issued in 2007 as a financial tool to address climate change. Since then, the green bond market has been growing exponentially, and in 2020, it reached 1 trillion USD in cumulative green issuance. There has been an ongoing debate on whether green bonds are priced differently from their conventional peers. The academic literature on this topic has not yet reached a consensus. This study provides a comprehensive analysis of green and conventional bond yield differences, referred to as the greenium, in the primary market. The green bonds are matched with synthetic, conventional bonds in such a way so that the difference in yield can solely be attributed to the green label. The results indicate an insignificant green bond premium of -8 bps. Therefore, the conclusion is that there is no significant difference in pricing between green and conventional bonds in the primary market. However, the study also concludes that greenium is significant when separate market segments are considered. Then, eight cross-sectional OLS regressions are specified to analyze how the hypothesized bond-specific and issuer-specific characteristics affect the variation in greenium. The analysis shows that the greenium determinants which significantly affect the variation in greenium are the issue amount, country, currency, seniority & collateral, the use of proceeds, sector, ESG, “E,” “S,” and “G” scores. The “E” score was the most significant greenium determinant among all of the pillars. Moreover, the greenium was more negative for issuers with lower ESG scores. On the other hand, the third-party verification, maturity, issue year, issuer type, coupon type, or ESG combined score cannot explain the variation in greenium to a significant extent. This study concludes that the green bond premium is mainly a result of investors’ non-pecuniary motives and is driven by their proenvironmental preferences and concerns. The discussion, which is built on the analysis, literature review, and both financial and non-financial theoretical frameworks, underlines the essential role that the greenium plays in developing the green bond market and suggests an action plan to establish and maintain greenium in the long term.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2021
Number of pages122
SupervisorsKristjan Jespersen