Green Bond Premium Detached From Climate Impact, Fed Paper Says

The premium investors pay to buy green bonds over conventional debt is not linked to the credibility of the environmental projects they fund, according to a Federal Reserve paper.

Green bonds have a yield spread that is eight basis points lower on average relative to conventional bonds, researchers John Caramichael and Andreas Rapp said in a paper this month. This so-called greenium in corporate bonds is biased toward investment-grade European firms rather than those with the best projects, they found.

“The empirical evidence suggests that a greenium exists, but it primarily favors large, rated European firms, does not necessarily reward ...