The Emerging Greenium

Abstract

We examine whether and to what extent investors are willing to forego financial returns in exchange for non-pecuniary benefits in the United States municipal bond market. We match municipal green bonds to otherwise almost identical non-green bonds from 2013 to 2022. Comparing 1,027 pairs of exact matches, we find green bonds are issued at a lower yield after 2018, with the average greenium being 2.3 basis points. The underwriter discount difference between green bonds and their matches was positive before 2018 and has become negative in recent years. The increase in greenium and the decline in underwriter discount coincide with the increase in Environmental, Social, and Governance (ESG) investment. The size of greenium is positively correlated with state-level green preferences and bond-level greenness. The term structure of greenium is downward sloped.