By Adam Scriven and Edward Hoyle, Man AHL: Green bond issuance has increased dramatically in the last five years. But how do corporate green bonds compare quantitatively to their non-green counterparts?
In our ‘Path Less Travelled’ series on multi-asset sustainable investing, we explore in depth various asset classes. Having previously considered responsible investing in relation to commodities and government bonds, here we examine the role of investment grade (IG) corporate green bonds. Specifically, we look at those bonds that adhere to the ICMA Green Bond Principles1, a widely adopted framework that ensures green bonds live up to their name.
Investors looking to supplement their portfolio with green bonds may wonder how such securities differ quantitatively from conventional debt. What are the structural differences (if any) of the green debt market? Do they have similar yields and risk characteristics? A common perception about green bonds is that demand outstrips supply, but is this true? And what about the so-called green premium or ‘greenium’ effect, where investors accept lower yields in return for holding sustainable debt?
Let’s dive in.