The Greenium Illusion? Rethinking Greenium Across Borders, Bonds, and Sukuk Markets

Abstract

Research originality – Greenium, the yield discount associated with green-labeled instruments, has drawn increasing attention as part of the global movement toward sustainable finance. Although greenium is an indicator of investors’ willingness to accept lower yields in support of environmentally advantageous projects, empirical evidence of its existence remains limited, especially across issuer types and financial systems.

Research Objectives – This study aims to assess the presence and variability of greenium across sovereign and corporate bonds and sukuk, using a dataset spanning 2015 to 2024 over various jurisdictions.

Research Methods – To provide robust insights, we employed a multi-method approach combining a twin bond analysis with the Propensity Score Matching (PSM) to estimate the Average Treatment Effect on the Treated (ATT) in broader samples. These techniques allowed us to directly measure matched green and other non-green instruments.

Empirical Research – Our findings indicate that greenium exists in both sovereign and corporate markets, with diverse effects seen in issuer class and industry. The results also confirm the presence of greenium in green sukuk, which implies an increasing alignment between sustainability and Islamic finance. It indicates that green labeling has the potential to reduce the cost of capital.

Implication – The study contributes methodologically by integrating comparative and matching techniques, empirically by offering cross-country and cross-instrument insights, and practically by informing green finance policies in both conventional and Islamic financial markets. We propose that future research explores the statistical and economic significance of greenium, incorporates granular ESG investor data, and examines how greenium behaves under conditions of market uncertainty.