Squeeze on ‘greenium’ as ESG bond investors demand more value

Squeeze on ‘greenium’ as ESG bond investors demand more value

Investors have long been willing to pay a premium for green bonds, rewarding companies or governments that want to clean up their act by giving them lower borrowing costs.

But, amid a boom in the issuance of bonds whose proceeds are earmarked for environmental spending, there are signs that this so-called “greenium” is being eroded.

Moody’s expects $450bn of green bonds to be issued worldwide in 2021, up from around $300bn last year. This should help to alleviate the scarcity that made green debt so prized by a fund management industry keen to show it is investing according to environmental, social and governance criteria.

At the same time, many investors are beginning to question the logic of paying extra for a bond with a “green” label, arguing that there are better ways to incentivise sovereign or corporate borrowers to boost their spending on environmentally friendly projects.

These fund managers say that companies or governments should be rewarded — or penalised — based on their green efforts as a whole, rather than hiving off a small part of their activities and rebadging the debt used to pay for it.

“We always evaluate an issuer in its entirety, not just one bond,” says Madeleine King, co-head of