What is Greenium?

About Greenium:

• Greenium, or green-premium, refers to the savings an issuer of a green bond realises on the associated coupon payment because the bond is green.
• It is the amount by which the yield on the green bond is lower, compared with the conventional bond.
• Green bonds are debt instruments that fund specific projects/activities categorised as 'green' under national or international green taxonomies.
  • Such activities may include renewable energy projects, electric buses, and energy efficiency initiatives. 
• Each bond has an issuer, i.e., those who want to raise money with a promise of a regular fixed payment and investors, i.e. those who provide that money with a promise of a regular fixed income.
• The logic behind a greenium is that because of the appeal of sustainability, green bonds attract investors who are ready to forgo some of their returns and accept lower payments (called a lower yield). 
• Further, long-term green projects are associated with a reduction in both physical and financial risk. Thus, investors settle for lower returns, making green projects financially attractive for the issuers of these debt instruments.