Determinants of the Greenium

Environmental, social and governance (ESG) bonds can benefit from yield discounts compared to their conventional twins, a phenomenon known as the ‘greenium’. From an issuer’s perspective, this discount can contribute to reducing financing costs of sustainable projects and activities. We aim to identify determinants influencing the greenium by employing an econometric causal analysis. Thereby, we examine five observable characteristics of corporate ESG bonds and their conventional twins for statistical differences in primary market yields and derive two overarching determinants from this. Results indicate that companies can actively foster the greenium through transparent information disclosure and sustainable corporate management. Actionable recommendations for issuers and legislators have been derived from these findings.