When we discuss a “greenimum’’ in the market, that refers to a premium on the price of green assets. Is there a greenium or not? It’s been a subject of debate for quite a while.
What can drive greeniums are excess demand versus supply, of course, and whether there are price-insensitive buyers in the market. These are features across all asset classes, not just green assets. These are risks we’ve dealt with as active managers for a long time.
The greenium in the green bond market has historically been about 3bps on average. How material is it? It is material when choosing between investments, however it’s not material relative to distortions created by liability driven investors or central banks in the broader market.
Interestingly, what we have seen in the last couple of months is a dissipation to the point where the greenium for new issues has disappeared. One of the most oversubscribed offerings last week was from a European energy company – a bond that was not labelled as a green bond — yet 90% of the issuer’s capital expenditure budget is going to green activity.
The point for us as sustainable bond investors is, we don’t have to buy only green or ESG (environmental, social, governance) labelled debt: If we feel the issuer through its core activity is supporting sustainable activity then we’ll buy those bonds. We have the flexibility to choose between the two different markets, labelled or unlabelled. That makes the greenium less relevant.
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