Are green and social bonds any different from regular ones?
The pricing of these particular types of bonds has been analysed by Mohamed Ben Slimane, Thierry Roncalli and Raphaël Semet in their latest paper « Green vs. Social Bond Premium ».
They compare their yields to that of regular bonds and draw conclusions for each type of bond separately:
- Green bond issuance represents more than three times that of social bonds, with €487B against $130B globally in 2022.
- Green bonds benefit from an average 3 basis point premium that investors are willing to pay for environmental benefits, whereas no statistically significant premium could be found for social ones.
- The green premium decreases over time and depends on the issuer's activity sector as well as the issuance currency, with non-euro projects subject to a higher one on average.
- The social premium also varies over time but does not seem to follow a clear trend, and even shows a negative correlation with the green premium over the long term.
- Yields are even lower when bonds can demonstrate external credibility, such as SDG-related targets or Climate Bonds Initiative certification.
The way social and environmental factors are priced in bonds does not reflect the current stated concerns of most investors for ESG risks and shows they are not properly integrated by the market.
In addition, the trend in premia over time shows the secondary market does not put as much emphasis on the green and social dimensions of bonds as the primary market.