Deconstructing the Greenium: Exploring Mispricing in the Green Bond Market

Author (Your Name)

Koto Yamada, Colby CollegeFollow

Date of Award

2025

Document Type

Honors Thesis (Open Access)

Department

Colby College. Economics Dept.

Advisor(s)

Yang Fan

Second Advisor

Dave Findlay

Abstract

This paper investigates the sources and conditions under which the greenium – a yield discount observed for green bonds relative to comparable conventional bonds – appears in global fixed income markets. Using a dataset of over 26,000 bonds issued between 2012 and 2024 across 37 countries and 5,400 firms, I find that the existence of the greenium is highly context-dependent, shaped by factors such as issuer reputation, institutional trust, and green capital allocation across sectors. Repeat green issuers receive yield discounts of up to 57 basis points, particularly in the EU and Nordic countries, where strong climate policies and disclosure frameworks have deepened investor confidence. In contrast, green bonds in North America are penalized by nearly 100 basis points, potentially due to regulatory fragmentation and concerns about greenwashing. Finally, the greenium is strongest in the Industrials and Financials sectors, but only when regional credibility supports investor trust. As a robustness exercise, I use the Climate Change Performance Index (CCPI) as a proxy for the strength of the country’s climate policies, and hence, institutional trust by investors. I find that companies in countries that increase their CCPI score by one standard deviation are rewarded with a 50 basis point deeper greenium. These findings highlight that investor willingness to accept lower returns depends on credible climate commitment—at both the firm and country level.

Keywords

Green Bonds, Greenium, Issuer Credibility, Climate Policy, Sustainable Finance, Bond Pricing

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