Greenium and Its Determinants at Various Phases of Life Cycle of European Green Bond Market

Abstract

The paper explores the evolution of greenium in European corporate primary green bond markets from 2013 to 2023. It introduces a new perspective by studying the phases of the life cycle of this market. The sample included 22,259 bond issues from 23 European countries, with 1,040 being green bonds. During this period the green bond yield discount was around 15 bps for banks and 40 bps for non-financial companies. Our findings revealed significant dependence on the size of the greenium on the phases of the lifecycle of the market. The most significant shift was observed after 2022 when the yield discount for green bonds changed by the premium to conventional bond yields of 36 bps. For non-financial corporates the previous 70 bps discount has been replaced by a premium of up to 27 bps compared to conventional bonds. Issuers in “clean” industries saw their yields increase by 43 basis points compared to conventional bonds. The result reflected energy crisis in Europe which is accompanies by tighter monetary policy, and reduction of corporate profits. The findings are crucial for researchers, central banks, and authorities responsible for financial stability and sustainable development.