Aware what a ‘GREENIUM’ is?

It’s not about gardening but a recent capital markets neologism that brings together the ‘premium’ an investor is willing to pay and the non-financial ESG value (environmental (i.e. ‘green’), social and governance) of the investment.

What remains open is the question whether the ‘greenium’ is indeed material; i.e. whether investors are willing to pay e.g. for green bonds more than than for ‘regular’ bonds.

Apparently, there are mixed views. According to a BNP Paribas study, a rapid increase in ESG bond desirability of investors has been recently observed; resulting in a new issue YTD ‘greenium’ of 7 basis pts. as compared to 2 basis pts. the year before.
On the other hand, Larcker and Watts (2020) have recently investigated the (US) municipal securities market and argue in their current research paper that in real market settings the greenium is essentially zero.

Indisputable, however, is the fact that sustainable finance is still in an early stage but volumes are growing substantially.

Accordingly, it will be interesting to follow how the “greenium” develops or if it will be rather the various non-financial aspects that the drive the sustainable finance wave forward.