- The paper explores the concept of the "greenium" – the premium that investors pay for green bonds over conventional bonds, which results in slightly lower yields. The study investigates which investors pay this premium and the motivations behind it, using data from Eurosystem's Securities Holdings Statistics to analyze green and conventional bond yields and ownership structures.
- The findings reveal a consistent greenium of approximately -3 basis points between green and conventional bonds. Three primary investor types—banks, investment funds, and insurance companies—account for most of the greenium. However, motivations vary. Investment funds and insurance companies pay the greenium largely due to non-pecuniary "green preferences," where clients or fund mandates prioritize sustainability over maximum financial returns. This reflects a broader trend where sustainability-focused funds overweight green bonds, driven by client demands for sustainable assets.
- Banks’ behavior differs markedly; they tend to concentrate holdings in specific green bonds that command higher greeniums, often in segments where they have particular operational interests, such as bonds from financial issuers or small, less liquid green bonds. This behavior is attributed not to sustainability preferences but to bank-specific financial frictions, possibly linked to liquidity constraints or intermediary asset pricing needs.
- Overall, the study shows that the pricing and demand dynamics for green bonds are influenced by both investor sustainability preferences and structural factors unique to different investor groups.
