The Emerging Greenium

Abstract

the emerging greenium* boyuan li†, baolian wang‡, and jiawei yu§ july 25, 2023 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. keywords: municipal bonds; green bonds; socially responsible investing; greenium jel code: g11; g12; g14 * preliminary and please do not quote without permission. we thank edward watts for providing us the code for processing the mergent data and many other helpful discussions. we also thank gustavo cortes, daniel garrett, r. paul herman, sehoon kim, nitish kumar, hao liang, miles livingston, monica reid, and seminar participants at the university of florida, the 12th municipal finance conference, and the florida finance conference, for …

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