What is Greenium
Greenium refers to the price difference between green bonds when they trade at a premium to conventional bonds. Both green bonds and conventional bonds come from the same issuer and there is no affiliation relationship, but the green premium between the two has long existed.
Green bonds pursue the benefits of long-term development and can also provide investors with diversified allocation needs. At the same time, there are pricing benefits. This benefit is the embodiment of the Greenium.
Why does Greenium Exist
Why are green bonds trading at a higher price than other bonds under the same circumstances? If we start with the concept of green bonds and the relationship between supply and demand, there are several explanations:
- Green bonds can improve the sustainability of the issuer, and sustainability can reduce the risk of the issuer (operating risk, default risk, etc.), so green bonds can be issued at a lower yield with a green premium.
- Growing investor demand for green bonds. With the development of ESG, green bonds have become an important asset for investors to allocate. When demand exceeds supply, green bonds may maintain a relatively higher price whether they are issued in the primary market or traded in the secondary market.
- Some investors with the theme of impact investment and ESG investment can accept a green premium to fulfill their commitment to sustainability.
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Overall, the emergence of a green premium sends a message to the market that issuers have an incentive to operate sustainably and benefit from lower borrowing costs. To monitor the issuer’s activities, some green bonds also provide that investors can demand higher interests from the issuer when sustainability targets are not met.