“Greenium” Emerging In Green Bond Market

Shanny Basar

New green bonds achieved better pricing, on average, than their vanilla equivalents in the second half of last year according to the Climate Bonds Initiative.

The investor-focused not for profit group analysed 36 euro and 13 US dollar green bonds issued in the last six months of 2019, about a third of green bonds that came to market in that period. The Climate Bonds Initiative said in a report that the sample achieved larger book cover and greater spread compression than vanilla equivalents on average.

“Yield curves were built for 19 green bonds in our sample,” added the study. “Just three priced with a normal new issue premium. The remainder priced either on their yield curves or with a greenium.”

In addition green bonds had, on average, tightened by more than matched indices and baskets of bonds sharing similar characteristics seven and 28 days after pricing. This suggests that the momentum gained during book building extends into the immediate secondary market according to the study.

Sean Kidney, Climate Bonds Initiative

Sean Kidney, chief executive of the Climate Bonds Initiative, said in a statement: “The report notes greenium emerging in some issuance and continuing strong investor demand for green sovereigns. These two factors should help shape market & investor directions and encourage a strong green component in stimulus programs.”

2020 issuance

The International Capital Market Association’s report for the second quarter said the COVID-19 pandemic had slowed issuance in the first three months of this year.

Green, social and sustainability bond volume was $33.75bn (€31bn) in the first quarter of this year, 35% lower than in the same period in 2019.

“This is likely to be mainly attributable to COVID-19’s global negative economic effect,” added ICMA.

ESG funds

In the equity market, environmental, social and governance funds are on average outperforming their conventional peers according to Detlef Glow, head of EMEA research at Lipper.

Glow evaluated whether the 34,340 equity funds in the Lipper database had outperformed the market between January 31 and March 31 this year using the Lipper assigned technical indicator. In total, 44.6% of the funds outperformed their respective technical indicator.

“Splitting these results up into conventional funds (31,567 funds) and funds which have integrated ESG criteria into their portfolio management processes (2,773 funds) shows that the most conventional funds (17,750) have underperformed their respective technical indicators, while the majority of ESG funds (1,497) have outperformed their technical indicators,” added Glow.

Detlef Glow, Lipper

He noted that the analyzed period of two months is too short to deliver statistically significant data and that conventional funds greatly outnumber ESG funds.

“However, since we used the technical indicator to calculate the relative performance of all funds, the results between the two different product groups are comparable,” said Glow.

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