The Green Premium : a study of the pricing of green bonds on the Swedish bond market

Sammanfattning: Issuing environmentally aligned green bonds has become an increasingly popular way to raise capital for green investments during the last decade. This thesis explores potential pricing differences between green and conventional bonds, known as the green premium, on the Swedish secondary bond market. Prior green bond research is inconclusive regarding the direction, size and even existence of such a premium. By creating a sample of 50 matched pairs of green and conventional bonds, we show an average positive green premium of 10 bps on the Swedish market, indicating that Swedish green bonds trade at higher yields than their conventional counterparts. We also study whether the size of the green premium is affected by credit ratings and third-party green certification but find no evidence of such effects. Overall, the results from this thesis add to current green bond research by showing a positive green premium, but the lack of shown effects from credit ratings and green certification indicate that further study is needed to fully understand the pricing mechanisms of green bonds.