Greenium – the spread between green and non-green bonds of the same issuer – has risen sharply in the past six months, according to a report from Bank of America.
It said, “We have witnessed an increase in greenium during the market volatility of 2022 for both sovereign and corporate issuers. For euro investment-grade credit, the greenium stands at -10 basis points.”
It added, “We tend to see narrower spreads for green bonds than for their conventional comparables. That spread was between 2 and 5 basis points in the fourth quarter of 2021, but has seen a large increase.”
Since October 2021, the report showed that the green premium has moved in a range of between -5 and -15 basis points relative to traditional bonds, and peaked in the summer of 2022, at times “of market stress.”
To calculate this average greenium, BofA researchers considered only senior, investment-grade, unsecured, euro-denominated green bonds, which they compared with conventional bonds of the same issuers and similar characteristics.
The greenium differs depending on the sector. For example, in the case of utilities, it stands at minus 7.5 basis points, while in real estate it soars to negative 22 basis points.
In these two sectors, BofA analysts said there were a reasonably broad spectrum of bonds to evaluate which is not the case for other sectors, “as few issuers have senior green and unsecured issues, both green and conventional, in different durations and with a long track record.”
The report also looked at whether financing become more expensive for sectors facing greater challenges from an environment, social and governance (ESG) perspective?
It found that the share of long-term – 10+ years – emissions coming from the energy sector has been declining, particularly for companies involved in refining, exploration and production.
In the first nine months of 2020 this sector accounted for 9% of the issues, a percentage that in the same period of 2022 fell to 2.3%. “Coupons are higher, in line with higher interest rates,” the report said.
It added that utilities comprised the largest proportion of euro-denominated green bonds. The fall in energy issuance “may have something to do,” these analysts point out, “with investors being less willing to provide long-term financing to this sector at a time of concern and uncertainty around the role of oil and gas in the transition.”
