Greenium:
The Chief Economic Advisor recently said that private investors need to “walk the talk” on prioritising sustainable investments, citing the low “greenium” from them on India’s sovereign green bond offerings.
- Greenium 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.
