The Emerging Greenium*

Boyuan Li† , Baolian Wang‡ , and Jiawei Yu§ July 11, 2023

Abstract

We examine whether and to what extent investors are willing to forego financial returns in
exchange for non-pecuniary benefits in the United States municipal bond market. We match
municipal green bonds to otherwise almost identical non-green bonds from 2013 to 2022.
Comparing 1,027 pairs of exact matches, we find green bonds are issued at a lower yield after
2018, with the average greenium being 2.3 basis points. The underwriter discount difference
between green bonds and their matches was positive before 2018 and has become negative in
recent years. The increase in greenium and the decline in underwriter discount coincide with the
increase in Environmental, Social, and Governance (ESG) investment. The size of greenium is
positively correlated with state-level green preferences and bond-level greenness. The term
structure of greenium is downward sloped.

Keywords: Municipal bonds; Green bonds; Socially responsible investing; Greenium

JEL Code: G11; G12; G14