Green bond premium in Nordic financial institutions

Sammanfattning

The green bond market has experienced significant growth in recent years. However, green bonds still constitute a relatively small share of the total bond market, and concerns regarding transparency and the lack of a universal definition of what qualifies as “green” may limit investor participation. These concerns may be particularly relevant for financial institutions, where proceeds are often channeled through lending activities rather than directly invested in identifiable green projects, reducing transparency for investors. This study investigates whether a green bond premium (greenium) exists for financial institutions in the Nordic bond market and whether bond characteristics such as liquidity, maturity, and coupon rate explain yield differences between green and conventional bonds. The greenium refers to investors’ willingness to accept a lower yield in exchange for investing in environmentally sustainable bonds. To examine this, bond data were collected from Capital IQ and a matched-pairs methodology was applied, where each green bond was matched with a conventional bond of similar characteristics issued by the same financial institution. The empirical analysis is based on 36 matched bond pairs covering the period 2010–2025 and employs both a paired t-test and an ordinary least squares regression. The results show no statistically significant evidence of a green bond premium among Nordic financial institutions. On average, the yield spread between green and conventional bonds is close to zero, and the paired t-test confirms that the difference is not statistically significant. Furthermore, bond characteristics, including maturity, liquidity, coupon rate, and yield measurement, do not significantly explain variations in yield spreads. Overall, the findings indicate that there is no evidence of a persistent greenium in this market segment. A possible explanation is the limited transparency regarding the use of proceeds within financial institutions, combined with the high degree of ESG integration and sustainability regulation in the Nordic financial sector, which may reduce the additional informational value of green bond issuance.