Greenium
Greenium is the possible price premium — and so lower yield — of a green bond compared with an otherwise similar conventional bond from the same issuer. Studies disagree on how large it is, and it is often small or absent.
If investors want green bonds badly enough, they may accept a slightly lower yield to own them. That yield gap is called the greenium. It matters to issuers, who could borrow more cheaply, and to investors, who could be giving up income. This entry explains how the greenium is measured, what the evidence says and why it is hard to pin down.
- Category
- Bonds and Interest Rates
- Reading time
- 4 min
- Also called
- Green premium
- Updated
Greenium in plain words
A greenium means a green bond yields a little less than a comparable ordinary bond. Research from the BIS found green bonds were, on average, priced at a premium when issued.1 See Green, Social and Sustainability-Linked Bonds.
Later work is more cautious: evidence for a consistent greenium is lacking, so green projects do not reliably get cheaper financing.2
How to estimate a greenium, step by step
Find a twin
Pick a conventional bond from the same issuer with similar maturity and ranking.
Match the currency
Compare bonds in the same currency or hedge the difference.
Compare yields
Subtract the green bond’s yield from the conventional bond’s.
Adjust for liquidity
Smaller or newer bonds can trade differently for reasons unrelated to the label.
Check over time
A premium at issue may not persist in secondary trading.1
Judge the size
A few basis points can be noise rather than a true premium.
Worked examples
Example 1 — Measuring the gap
Yield gapAn issuer’s conventional bond yields 4.50%. Its green bond with the same maturity yields 4.40%.
| Greenium | 4.50% − 4.40% = 0.10% (10 basis points) |
Investors accept 10 basis points less to hold the green bond.
Example 2 — The issuer’s saving
Cheaper fundingThe issuer raises $500 million at that 10-basis-point lower yield.
| Annual saving | $500,000,000 × 0.10% = $500,000 |
A greenium lowers funding costs, though modestly compared with the overall interest bill.
Example 3 — The investor’s cost
Lower incomeAn investor holds $1,000,000 of the green bond instead of the conventional one.
| Income given up | $1,000,000 × 0.10% = $1,000 a year |
The investor pays a small price for the label. Whether that is worth it depends on their mandate and goals.
At issue vs. in secondary trading
| Aspect | At issue | Secondary market |
|---|---|---|
| Evidence | Premium on average in BIS sample | Performance similar to other bonds |
| Driver | Strong demand for new green supply | Normal market pricing |
| Who benefits | Issuer | Neither side consistently |
| Size | Usually small | Often close to zero |
Why the greenium matters
Issuer decisions
A greenium can tip the choice towards a green label.
Investor returns
Paying a premium means slightly lower income.
Market demand signal
A growing premium can indicate scarce green supply.
Policy debate
Whether markets reward green projects with cheaper funding.
Advantages and disadvantages
Advantages
- Gives issuers a financial reason to fund green projects.
- Shows how much investors value the label.
- Simple to express in basis points.
Disadvantages
- Hard to measure cleanly.
- Often small or inconsistent.
- Can be confused with liquidity or supply effects.
- Means lower yield for buyers when it exists.
Going deeper
Read as far as you need. Each level builds on the one before it.
Basis points
Beginner
A basis point is 0.01%. A greenium of 10 basis points means a yield 0.10% lower.
How big is it?
Intermediate
In the BIS study, the average spread difference at issue was around 18 basis points, with a standard deviation of 27 basis points — a wide range that includes bonds with no premium.1
Same credit, different price
Advanced
Green and conventional bonds from one issuer usually share the same credit risk, so any lasting yield gap must come from demand, liquidity or investor preferences rather than default risk. See Credit Spread.
Common mistakes
Assuming a greenium always exists
Evidence is mixed and often shows little or none.
Comparing unlike bonds
Different maturities or currencies distort the gap.
Ignoring liquidity
A thinly traded bond can show a misleading spread.
Treating it as risk reduction
Credit risk is the same as the issuer’s other bonds.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Greenium is the lower yield of a green bond versus a similar conventional bond.
- BIS research found a premium at issue on average.
- Later evidence shows no consistent greenium.
- It is usually small and hard to measure.
- Credit risk is not reduced by the label.
Frequently asked questions
Do green bonds always yield less?
Is a greenium good for investors?
Why might a greenium disappear?
Further learning
- Green, Social and Sustainability-Linked Bonds
Green, social and sustainability-linked bonds.
- Credit Spread
How bond yields compare.
- Yield to Maturity
The yield measure used for comparisons.
- Liquidity
A common source of misleading spreads.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- BIS Quarterly Review. Green bond finance and certification (September 2017) (opens in a new tab) Checked .
- European Central Bank. Financial Stability Review special feature (May 2023): ESG funds and the greenium (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.