Institutional investors that want to shape their investment portfolio to meet their ESG goals are increasingly turning to green bonds. Green bonds are intended to exclusively finance projects that have a positive environmental impact. As a result, these bonds have different use of proceeds, and have unique certification and reporting standards. They also have a distinct investor approach, which can lead to differences in pricing. Using the example of Belgium, a premium of 5.2 basis points (=0.052%) was calculated for its bond maturing in 9 years and 1.2 basis points for its bond maturing in 16 years. This results in a median green premium or ‘greenium’ of 3.2 basis points. Robeco research finds that there is a median greenium of 2.2 basis points for a large sample of euro-denominated government(-related) bonds. In other words, current market pricing suggests that investors are willing to forgo roughly 2 basis points of yield by having green-labeled bonds over their conventional counterparts.
Source: Robeco, Bloomberg, February 2024.