Green bonds demonstrate pricing benefits for both issuers and investors in primary and secondary markets

Climate Bonds Initiative released the 13th iteration (covering H2-2021) of its leading series “Green Bond Pricing in the Primary Market”, analysing pricing dynamics of green bonds, examining how these instruments offer pricing advantages for investors and issuers alike.

The H2-2021 Report analyses 73 benchmark-sized green bonds (53 denominated in EUR and 20 in USD) with a total volume of USD 71.8 billion issued between July and December 2021. The methodology is designed to capture the most liquid portion of the green bond market and is thus limited to USD and EUR bonds with a minimum original size of USD 500 million.

The research has embedded the concept of the “greenium” in the discourse of sustainable finance. Greenium refers to the new issue premium, the extra yield that a buyer receives, and a seller pays for a new green bond, compared to where seasoned bonds from the same issuer are trading in the secondary market at the time of issuance.

The report observes that, on average, both EUR and USD green bonds in the sample achieved larger book cover and spread compression compared to vanilla equivalents (conventional bonds). Half of the bonds with yield curves priced with a greenium or inside their yield curves. In addition, the study demonstrates that green bonds experience stronger secondary market performance compared to vanilla equivalents.