Working Paper Series no. 1010. The green bond market has experienced rapid growth in recent years, driven by increasing global awareness of climate change. However, the existence, magnitude and driving forces behind the “greenium” in the secondary market - a price premium associated with green bonds - remain subject to debate. This study investigates the evolution of the greenium in the euro area from 2016 to 2023, encompassing a period of significant macroeconomic shifts, including the COVID-19 pandemic, energy crisis, and the subsequent period of heightened inflation and monetary tightening. Our analysis applies a k-prototypes matching algorithm to construct a closely matched panel of European green and conventional bonds and documents a novel finding that retail investors' demand for green bonds partly drives the greenium. Sensitivity of retail investors' financial conditions to the macroeconomic situation and particularly tighter monetary policy may explain investors' appetite for green bonds and thus the greenium time dynamics. Finally, we confirm investors' preferences for green bonds with higher credibility of both bonds and bond issuers.
Estimated greenium and confidence interval on quarterly subsamples
Using data from the ECB Securities Holding Statistics and Bloomberg, we examine a large dataset of green and conventional bonds issued in the euro area. We focus on bonds defined as green by the widely accepted ICMA Green Bond Principles and use a k-prototypes matching algorithm to construct a closely matched panel of green and conventional bonds.
Our findings suggest that on the full sample from 2016 to 2023, European green bonds generally have a small but significant greenium, averaging about -3.7 basis points, meaning they are slightly cheaper to issue than conventional bonds. Furthermore, this greenium varies over time: it was negligible before 2020, grew stronger from 2020 to early 2022, and weakened again in 2022–2023, reflecting changing economic conditions.
We document that this temporal dynamics is driven by retail investors. In mid-2020, a sharp increase in retail investors’ share of green bonds, particularly those issued by banks, explains the rise in economic and statistical significance of greenium. On the other hand, greenium disappears when the demand for these bonds weakens with rising interest rates and worsening economic conditions. On average, green bonds held by retail investors also show a larger greenium of -6.4 bps. Our results corroborate studies relying on survey and choice experiment setups to show that retail investors favor green bonds despite lower return (Aruga (2025), Saravade et al. (2025)).
Finally, we confirm previous findings that investors value more credible green bonds that are either externally reviewed or issued by banks committed to environmental goals, such as members of the UNEP FI. These bonds have a stronger greenium, -4.1 bps for reviewed bonds and -5.7 bps for bonds from committed banks, highlighting the market’s preference for trustworthy green investments.
This study adds to the understanding of green bonds by showing how the greenium evolves, the role of retail investors, and the importance of credibility in the European market. These insights highlight the need for clear standards, like the EU Green Bond Standard, to ensure green bonds genuinely contribute to environmental goals and maintain investor trust.
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Updated on the 17th of September 2025