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Thematicbondsand

howtodelivermore

sustainablefinanceindevelopingeconomies

byLarsJensen

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Thematicbondsandhowto

delivermoresustainablefinanceindevelopingeconomies

byLarsJensen(

lars.jensen@)

1

1LarsJensenisaSeniorEconomistatUNDP’sBureauforPolicyandProgrammeSupport.Acknowledgements:AspecialthanksgoestoSeniorResearchAssociateDanielHardyfromtheViennaInstituteforInternationalEconomicStudiesandProfessorofEconomicsandDirectorofSustainableFinanceUlrichVolzatSOASUniversity,London,forcommentsonanearlierdraft.TheauthorwouldalsoliketothankUNDPcolleaguesGeorgeGrayMolina,MarcosNeto,TenkeAndreaZoltaniandKirthisriRajathaWijeweera.Thispaperreflectstheopinionoftheauthor.

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES1

Contents

Abstract 3

1.

Introduction 4

2.

Thethematicbondsmarket 5

3.

Issuerincentives 8

4.

Credibilityandadditionality 11

5.

Thematicbondmodelswithcreditenhancements 13

6.

Fivefeaturesofadevelopingeconomygreenbondmodel 18

7.

Conclusion 22

References 23

Figures

Figure1.Thethematicbondsmarket–yearlyissuances(US$billion) 5

Figure2.Sovereignbondyieldversuscreditrating 14

Figure3.CumulativeGreenFinancing(GF)andEligibleGreenExpenditures(GE) 19

Figure4.Agreenbondmodelfordevelopingeconomies 20

Boxes

Box1.Categoriesofthematicbonds 6

Box2.Thegreenium 9

Box3.DfDcomplexityandcost 15

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES2

Abstract

Sustainability-themedbondsaregrowinginpopularity,includingamongdevelopmentpractitionerswhoviewthemaspromisinginstrumentsinthedeliveryofmore,especiallyclimate,financeindevelopingeconomies.Thispaperprovidesanoverviewofthethematicbondsmarketandadiscussionofissuerincentivesaswellassomeofthemainchallengesrelatedtoadditionalityandcredibility.Toimprovethepotentialofthematicbondsasatoolforsustainableandequitabledevelopment,thepaperproposesfivefeaturesthatanyofficialsector-supportedmodelshouldprioritize.Thesefeaturesaimtodeliversubstantiallylowerfundingcostsfor‘greenactivities’andimprovemarketaccessaswellasthecredibilityofbonds,whichincludestrengtheningissuercommitmentstoambitioustargetsandincentivestoimplementclimate-friendlypolicies.Finally,itisimportanttorecognizethelimitationsofdonor-supportedmodels.Highdebtburdensinmanycountrieslimittheuseofdebtinstruments,andthesewillcompeteforlimitedofficialsectorfundswithother,potentiallyfairer,meansofdeliveringclimatefinance.

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES3

Introduction

1

Sustainability-themedbonds,inshortthematicbonds(TBs),areoneofthemostprominentinnovationsinsustainablefinanceinrecenttimes.Thestillrelativelynewandsmallmarket,especiallyforsovereignswhohavebeenslowertocatchon,continuestoundergoafast-paceddevelopmentdrivenonwardbytheincreasingurgencyofclimateaction.ThroughTBs,suchasthedominantgreenbonds,financialmarketsareexpectedtoplayacatalyticroleinfinancingclimatechangemitigationandadaptation,aswellasothersustainabledevelopmentpriorities.Thereare,however,goodreasonstoremaincautiousaboutthetransformativepotentialofTBs,especiallyinadvancedeconomies,butalsoindevelopingeconomies(DEs)thatstandtobenefitthemostfrommorefavourablemarketaccess.2Attheheartofthematteristhequestionofadditionality:DoTBsleadtoinvestmentsinsustainabledevelopmentthatotherwisewouldnothavebeenundertakenoralternativelyundertakenatalowerquality?

ParticularlyforDEsrelativetoadvancedeconomies(mostofwhichhavehighinvestment-gradecreditratingsandaccesstoadiversegroupofinvestors),itisoftenarguedthatTBscomparedtoordinaryvanillabonds,canpotentiallyunlockaccesstonewinvestorsthatofferlongermaturityandmorestablefunding.However,moreresearchisneededtounderstandtheextenttowhichTBsexpandthequantityandqualityofcountries’resourceenvelope.Althoughtheliteratureismoreadvancedondifferencesinfundingcosts–oftenreferredtoas‘greeniums’forgreenbonds—itoffersmixedconclusions.Evenforstudiesthathavesuccessfullyidentifiedgreeniums,thereislittleconsensusabouttheirlongevityanddrivers.Giventheirmostlysmallsize,itisalsodifficulttoarguethattheycansubstantiallyinfluencespendingdecisionsorfreeupresourcesthatwouldhaveotherwisegonetoservicedebt.

Tobecomeastrongerandfairerforceforsustainabilitytransformations,TBstargeting‘greenactivities’inDEswillhavetomoreclearlydemonstratethattheycan:1)significantlylowerfundingcost;2)deliveraccesstobettersourcesofcapital;3)buildcapacityandknowledgethatimprovespendingdecisionsandultimatelyimpact,and4)improvethecredibilityofthe‘greenlabel’byaddressinggreenwashingconcerns.Toachievethis,thepaperoutlinesfivefeatures,whichshouldbeprioritizedinanyofficialsector-supportedmodel.Thesefeaturesincludeastrongcreditenhancementandtechnicalassistancecomponentandmeasuresaimedattrackingboththeprojectandaggregate/overalllevelofdevelopmentperformance,aswellasfinancialrewardslinkedtoambitioustargetsandtheuseofclimate-friendlypolicyreforms.Thesefeaturesareaccomplishedwhileallowingcountriesafairdegreeofintertemporalfiscalflexibilitytoundertakeandaccountforeligibleactivitiesandexpenditures.Theapproachpresentedhereisrootedintheglobal‘justtransition’principlesandoffersguidanceonawayforwardformobilizingfairandeffectiveclimatefinancetoDEsthroughthematicdebt.

Theremainderofthepaperisorganizedasfollows.Section1providesabriefoverviewoftheTBmarketincludingitssizeandtwomaintypologiesofbonds.Section2discussesissuerincentivesfocusingonborrowingcosts,capitalaccessandlearning.Section3addressessomefundamentalcredibilityandadditionalitychallenges.Section4discussesTBmodelswithcreditenhancements.Section5outlinesthefivefeaturesofafairandeffectiveofficialsector-supportedTBmodeltargetinggreenactivities.Finally,Section6concludesthepaper.

2Theterm‘developingeconomy’asusedherebroadlyreferstoalllow-andmiddle-incomecountriesasperWorldBankincomeclassification.Whendiscussingbonds,however,onlyfewlow-incomecountrieshavemarketsaccesswhydevelopingeconomiesismostlyareferencetomiddle-incomecountries.Sometimeswhenreferringtoexternalstudiesthetextwillusetheterm‘emergingmarketsanddevelopingeconomies’(EMDEs),whichcoversallcountriesnotclassifiedasadvancedeconomiesbytheIMF,includingalllow-andmiddle-incomecountries.

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES4

Thethematicbondsmarket

2

TherearetwomaincategoriesofTBs:use-of-proceeds(UoP)andtheemergingsustainability-linkedbonds(SLB),cf.Box1.Mostbondsunderthesecategoriestargetclimateandenvironmentalobjectives,andbondslinkedtosocialorothersustainabilityobjectivesarestructurallysimilar.3ThemarketisdominatedbyUoPgreenbonds(GBs),whereasSLBsarealaterinventionwithamuchsmallermarketsize.

AcrossdifferentthemesTBsstillonlymakeuplessthan2percentofthetotalbondsmarketbuthavegrownrapidlyfromclosetozeroadecadeagotoacumulativeissuanceofabout$5.3trillioninthefirstquarterof2024accordingtotheWorldBank(WorldBankTreasuryDepartment,2024)or$4.4trillionattheendof2023accordingtotheClimateBondsInitiative’sscreeningmethodology(ClimateBondsInitiative,2024).

Sovereignsarrivedinthemarketlaterandonlyaccountforabout11percentofcumulativeTBissuances,buthavebeengrowingtheirshare,whichin2023was$149.3billionofatotalof$848.9billion,oralmost18percent(cf.Figure1).4Sovereigns’participationinthemarketwasdelayedinpartbythefungibilityrequirementsinpublicdebtframeworks,whichconflictedwiththeUoPearmarkingofmostTBs.ThisproblemhasbeenpartiallyalleviatedbymoreandmoresovereignsadoptingnationalTBframeworkswithreportingstandardsandexternalreviewrequirementstoinstillconfidenceamongsustainability-focusedinvestors(Cheng,Ehlers,&Packer,2022).

Figure1.Thethematicbondsmarket–yearlyissuances(US$billion)

500

450

400

350

300

US$billion

250

200

150

100

50

0

2014201520162017201820192020202120222023

100

90

80

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60

%

50

40

30

20

10

0

uSovereignuCorporate*uOther**

Developingeconomies,%oftotal(Rhsaxis)Greenbonds,%oftotal(Rhsaxis)

Source:ClimateBondsInitiative(CBI)DataPlatform.Note:TheCBIdatabaseincludesallgreen,socialandsustainability-themedbondsalignedwiththeCBIscreeningmethodologies.*Includesfinancialandnon-financialcorporates.**Includeslocalgovernments,developmentbanks,government-backedentities,andnonprofits.

3Itcanbenotedthatinthispaper,theterm‘thematicbonds’coversallbondstargetingsustainabledevelopmentpriorities.Anotheroftenusedtermis‘green,socialandsustainability’(GSS)or‘green,social,sustainabilityandsustainability-linked’(GSSS)bonds.Seeforinstance(ClimateBondsInitiative,2024)and(WorldBankTreasuryDepartment,2024).

4In2016,PolandbecamethefirstsovereigntoissueaTBintheformofaGBworth$790million.

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES5

GBsaccountforalmosttwo-thirdsofthecumulativeTBmarkettodate,andsawtheirsharedropsubstantiallyin2020asCOVID-19promptedasharpincreaseintheissuanceofsocialbonds.ThelargestGBsovereignissuerstodateareFrance,GermanyandtheUK.WiththeNextGenerationEUproject(NGEU),theEuropeanCommission(EC)issettobecometheworld’slargestissuerwithaplanned€250billion($268.4billion)ofNGEUGBs,ofwhichapproximately€44billion($47.2billion)hasbeenissuedtodatetofundeligiblegreenexpendituresinEUmemberstates(MS).5MostGBproceedsarereportedtofundprojectsincleantransportation(37percent),energyefficiency(21percent)andadaptation(12percent).6

FortheTBmarketasawhole,developingeconomiesaccountforabout23percentoftotalcumulativeissuances,buttheirsharehasbeengrowingsince2021andreachedalmostone-thirdoftotalissuancesin2023.

ForthelaterclassofSLBs,cumulativeissuancesarestillonlyasmallfractionofthetotalTBmarket.AccordingtotheClimateBondsInitiative,cumulativeissuancesofSLBsreached$280billionattheendof2023.However,whenapplyingtheirSLBscreeningmethodologyaimedathelpinginvestorstoidentifydealswithtargetsthatarecredibleandalignedwiththe‘wellbelow2°C’goaloftheParisAgreement,thevolumeofSLBsfallstoonly$48.6billion,or21percentofcumulativeissuances(ClimateBondsInitiative,2024).7Onlytwosovereigns,ChileandUruguay,haveissuedSLBstodate.

Box1.Categoriesofthematicbonds

Use-of-proceedsbonds

UoPbonds,oftenreferredtoasproject-basedbonds,havetheirproceedsearmarkedforspecificprojectsoractivitiesconsistentwiththeissuer’sinvestmentframeworkforeligibleprojects,suchasaGBframework.Typically,theissuercanraiseTBproceedsuptoanamountnotexceedingtheeligiblethematicexpendituresasdefinedbytheframework.Theideaisthatinvestorscanchoosetofundonlythoseactivitiesthatareconsideredsustainable.TherearenolegalorregulatorybindingdefinitionsofsovereignTBs.However,mostcountries’GBframeworksfollowthenon-bindingGreenBondPrinciples(GBP)frameworkcreatedbytheInternationalCapitalMarketsAssociation(ICMA).Here,aGBisdefinedas:‘anytypeofbondinstrumentswheretheproceedswillbeexclusivelyappliedtofinanceorre-financeinpartorinfullnewand/orexistingeligibleGreenProjectsandwhichfollowsthefourGreenBondPrinciples’(ICMA,2021).

TheEuropeanCommissionhasalreadyissuedaboutUS$47billionofGBsunderitsNextGenerationEU(NGEU)initiative,so-calledNGEUGBs,andisexpectedtobecometheworld’slargestGBissuer(EuropeanCommission,2023a).TheEUisalsoworkingonimplementinganEUGBstandardlayingdownstandardsforissuers(insideandoutsidetheEU)whowishtousethedesignation‘Europeangreenbond’or‘EuGB’(EuropeanParliament,2023).TheEUGBstandard,accordingtotheEU,seekstoimprovequalityandcredibilityoverexistingframeworksbysettinghigherstandardsfortransparencyandexternalreviewrequirements.ActivitieseligibleforEuGBfundingaredefinedintheEUGreenTaxonomyandcoversixenvironmentalobjectives(EUTechnicalExpertGrouponSustainableFinance,2020).8Proceedscanbeallocatedflexiblytodifferenttypesofspending,suchasfixedassets,capitaloroperatingexpenditures,financialinstrumentsandhouseholdfinancingandmustbeaccountedforbeforethebondmatures.Toallowforsomeflexibilityvis-à-viseligibleactivities,15percentofproceedscanbeallocatedtoeconomicactivitiesforwhichthetaxonomyhasnotyetdefinedanytechnicalscreeningcriteria,and/orforactivitiesinthecontextofcertaininternationalsupport.SomebelievethattheEUframeworkwillbecometheGB‘goldstandard’(Latham&Watkins,2023).9

5See(EuropeanCommission,2023a)and(EuropeanCommission,2023b).

6SeeIMF’sClimateChangeDashboardFinancialIndicators,(IMF,2023a).

7Thetwomainreasonsfornon-alignmentarereportedtobea‘partialGHGscopecoverageintargets’(48percentofallnon-alignedSLBs)anda‘lackofGHGtargets’(32percentofallnon-alignedSLBs).

8Climatechangemitigation,climatechangeadaptation,protectionofwaterandmarineresources,circulareconomyandpollutionpreventionandcontrol.

9See(EuropeanCommission,2023a).

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES6

Box1.Continued

Sustainability-linkedbonds

ThesecondcategoryofTBsissustainability-linkedbonds(SLB),alsoreferredtoastarget-orperformance-basedbonds.SLBproceedsarenotearmarkedforsustainableactivitiesbutgotowardsgeneralpurposedebtand,therefore,allowtheissuermoreflexibilityoverUoPs.Instead,bondrepaymenttermsarelinkedtotheissuer’sprogressononeormorepredefinedsustainabilityperformancetargets,supportedbymoredetailedkeyperformanceindicators.10Targetscan,forinstance,beemissionsreductions,totalforestcover,percentageofwomenontheboardofdirectorsoflargecompanies,etc.Iftheissuerfailstoachievethetargetssetwithinanagreedtime,afinancialpenaltykicksin,usuallyintheformofacouponstepup,andinsomecasesSLBswillalsoallowforafinancialrewardiftargetsaremetorexceeded.Thispenalty-rewardstructureismeanttostrengthentheissuer’scommitmenttoreachingthetargets,therebyinstillingconfidenceamongsustainability-focusedinvestors.

LikeUoPGBs,ICMAhasalsopublishedSLBprinciplesandadefinition:‘Sustainability-LinkedBondsareanytypeofbondinstrumentforwhichthefinancialand/orstructuralcharacteristicscanvarydependingonwhethertheissuerachievespredefinedSustainability/ESGobjectives’(ICMA,2023).

Foradescriptionofallthestepsinvolvedinissuingathematicdebtinstrumentforbothinvestorsandissuers,seeforinstance,theguidancedevelopedjointlybytheGlobalInvestorforSustainableDevelopmentAlliance,UNDESAandUNDP(GISD,2024).

10Seeforinstance(FinancialConductAuthority,UnitedKingdom,2023).

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES7

Issuerincentives

3

Manyemergingmarket(EM)sovereignsareoptimisticregardingissuingTBs.Ina2022WorldBanksurveyof32EMDebtManagementOffices(DMOs),eight(25percent)hadalreadyissuedandanother16(50percent)wereconsideringissuingTBs(WorldBank,2022).Thenumberonereasonprovidedwastodiversifytheinvestorbase,whilethesecondwastosignaltheissuer’scommitmenttosustainability.

TBsaremorelikelytohaveanadditionalityimpactonsustainabledevelopmentifatleastoneofthreeconditionsaremet:1)Cost–TBsfetchhigherpricesandthusloweryields–so-called‘greeniums’forGBs–thanordinaryvanillabonds(OBs);2)Access–TBsfacilitateaccesstoadditional(new)andperhapsbettersourcesofcapital(bettermeaninglessvolatilewithlongermaturity);and3)Learningandcommitment–issuingaTB,andimplementingtheaccompanyingframework/requirementsleadstobettersustainabilityoutcomesby,forinstance,improvinggovernmentcoordinationandstrengtheningcommitment.

Spendingdecisionsareingeneralindependentofthetypeoffinancingavailable.Assuch,agovernment’soptiontoraiseproceedsfrom,forexample,aGBissuanceisunlikelytoresultinanyadditionalgreenspending.However,incaseswherecertaintypesofexpenditurescanfacilitatesubstantiallylowerborrowingcosts,andwherereachingthemainpolicyobjectivecanbeachievedthrougheitheragreenornon-greenalternative,spendingdecisionscanbeinfluenced11Furthermore,lowerborrowingcostswillallowcountriestoeitherincreasenon-interestexpenditures,includingmoregreenexpenditures,oralternativelybringdowndebt.Itisworthnotingthatclimateactionisalsolikelytocontributetoaloweringofborrowingcosts,independentofhowitisfinanced.Growingevidencesuggeststhatmarketsareincreasinglypricinginclimateriskperformanceandexposureinsovereignbonds,andforlower-ratedcountriesespeciallyphysicalimpactpreparednessandclimateriskexposure(Bingler,2022).BysomeestimatesclimatevulnerabilityhasraisedtheaveragecostofpublicdebtinDEsby117basispoints(Kling,Lo,Murinde,&Volz,2018),andotherestimatessuggestthata10percentagepointincreaseinclimatechangevulnerabilityisassociatedwithamorethan150basispointincreaseinlong-termgovernmentbondspreadsinemergingmarketsanddevelopingeconomies(WorldBank,2023).

Greeniums,understoodastheyielddifferencebetweenanotherwiseidenticalOBandGB,caninafewcasesbeobserveddirectly,butresearchersmostlyhavetorelyonmodelsandestimatestostudythem.Evidenceoftheirexistence,sizeandlongevityismixed(seeBox2).

ForSLBs,identifyingthegreeniumisfurthercomplicatedbytheiruniquerepaymentstructure,whichmakesitdifficulttofindgoodreferencebonds.However,Chile’sfirstSLB(whichwasalsotheworld’sfirstsovereignSLB)receivedanestimatedgreeniumof10basispointsonissuance12InChile’ssecondSLBandUruguay’sfirsttherewerenoclearsignsofanygreeniums13NotonlydidChile’ssecondSLBnotreceiveagreenium,italsoonlyincludedapossiblecouponstep-up(penalty),likemostSLBs,thatcouldraisethecouponby5to50basispointsdependingonwhetheroneormoredevelopmenttargetsaremissed14Uruguay’sbondhasbotharewardandpenaltystructurebyeitherdecreasingorincreasingcouponsbyamaximumof30basispointsandstartinginyearsixaftertheissuance15Asanexample,inthebest-casescenario,Uruguay

11Increasingenergyaccesscanforinstancebeachievedthroughtwocompetingtechnologies:fossil-fuels(FF)orrenewableenergy(RE).IfagovernmentcanreduceinterestexpenditurebycountingtheREexpendituretowardsGBproceedsand/orobtainaccesstoadditionalcapitalneeded,thiswillfactorinpositivelyfortheREoptionrelativetotheFFoption.Seeforinstance(IEA,2024).

12AsreportedbytheInternationalFinanceReview(Lewis,2022)and(Lindner&Chung,2023).

13AsreportedbytheRetailBankerInternational(Bindman,2023).

14ForChile’smostrecentSLB,keyperformanceindicatorsarerelatedtototalemissions,renewableelectricitygenerationandgenderequality(FitchRatings,2023a).

15Uruguay’s2034bondof$1.5billionwasissuedatacouponof5.75percentinOctober2022andwillberepaidinthreeequalannualinstallmentsstartingin2032.Undersuccessfulgoalsachievementa30basispointscouponreductionwouldaccruefromOctober2027.Thiswouldsaveapproximately$18.7million(or2.8percent)oftotalinterestpaymentsinnetpresentvalueterms(NPVusingadiscountrateof5percent)overthe

lifetimeofthebond.Formoredetailsonthebondstructureandkeyperformanceindicatorssee(FitchRatings,2022a).

THEMATICBONDSANDHOWTODELIVERMORESUSTAINABLEFINANCEINDEVELOPINGECONOMIES8

wouldsaveabout2.8percentnetpresentvalue(NPV)oftotalinterestpaymentsoverthelifetimeofthebond,whichwhenrecalculatedtoagreeniumonissuance,wouldbeequivalenttoabout16basispoints.Inaworst-casescenario,Uruguaywouldhavetopay2.8percentmore.

Box2.Thegreenium

Whyagreenium?

Theliteraturehasmainlyfocusedontwocompetingexplanationsofgreeniums(Löffler,Petreski,&Stephan,2021).Oneisthatinvestorswithpro-environmentalpreferencesarewillingtoacceptalowerreturntoholdgreenassets.Abondgreeniumwouldthenexistifthereisastrongerdemandforgreenbonds(GBs)relativetoordinarybonds(OBs).Thestrongerdemandcanbedriven,forinstance,byadoptedminimumgreenallocationtargetsbyinstitutionalinvestors(Boermans,2023).AnotherexplanationisthatGBs(andgreenassetsingeneral)mightcarryalowercreditriskand,therefore,warrantaloweryield.However,whencreditorshavethesamerecoursetotheissuer’sassets(suchasforsovereignbonds)thissecondexplanationdoesnotapply.Conversely,evenifitwerepossible,forexample,toattributeareductionincreditrisktoaGB,thisshouldaffectthepricingofallexistingandnewbonds.ThisisalsoreflectedinthefactthatsovereignOBsandGBs(forissuanceswithoutthird-partycreditenhancements)areissuedatthesamecreditrating.Ininterviewsconductedwithinvestorsinsovereigndebt,itshouldalsobenotedthatnoneofthembelievedthatthepricingdifferencewouldeverbesignificantlylarge,becauseultimatelythebondssharethesamecreditrisk(GISD,2024).

Whatisthesizeofgreeniums?

IdentifyingagreeniumrequirescomparingaGBtoanidenticalOB(risk-profile,size,maturity,timing,etc.).ForGermanyandafewothercountriesthathaveissuedGBsundertheso-called‘twinbondmodel’thegreeniumisdirectlyobservable,astheGBisissuedalongsideanotherwiseidenticalOB,withtheoptiontoconverttheGBtotheOBatanytime.TheGermangreeniumwasabout2basispoints(0.02percentagepoints)atissuance,wideningtoabout5basispointsinthesecondarymarketbeforefallingtobetween1to2basispointsatthetimeofwriting.

Thetwinbondcomparisonisnotpossibleinmostcases,soresearchersrelyonmodelsandestimates.Overall,empiricalresultsonthepresence,sizeandlongevityofgreeniumsaremixed.OnerecentstudyoftheEuropeansustainable(ESG)debtmarket(i.e.notonlyGBs)coveringbothcorporateandsovereignissuersfoundthatwhileenvironmental,socialandgovernance(ESG)bondsdidcarryloweryieldsinthepast,thisisnolongerthecase,andconcludedthatthereisnoevidenceofasystematicandconsistentpricingadvantageforanyESGbondcategory(Balitzky&Reiche,2023).AnotherstudyfocusingonsovereignGBsreportedthatgreeniumsrangefromanaverageof4basispointsinadvancedeconomiestoahigher11basispointsinemergingmarkets(Ando,Fu,Roch,&Wiriadinata,2023).AnotherGBstudycoveringallEMDEissuersfoundthatgreeniumsaveraged4.2basispointsin2021and6.4basispointsattheendof2022(Amundi&IFC,2023).Additionalstudieshaveshownthatgreeniumsrangefrom15to20basispointsinprimaryandsecondarymarkets(Löffler,Petreski,&Stephan,2021).SomeresearchershavealsoprovidedevidencethatinvestorsarewillingtopaymoreforGBsofahigherqualityandcredibility,asGBswithexternalreviewandverificationrequirements,andGBsthathavebeenproventosignificantlycontributetoclimatemitigationandadaptationcarriedhighergreeniumsthanthosethatdidnot((Dorfleitner,Utz,&Rongxin,2022);(Baker,Bergstresser,Serafim,&Wurgler,2018);(Pietsch&Salakhova,2022)).High-qualityGBsweredeterminedtocarry,onaverage,agreeniumofupto5basispointsoverlowqualityGBs.LarckerandWatts(2020),however,arguethattheUSmunicipalbondsmarketcanbeconsideredaquasi-naturalexperimentforassessinggreeniums,asitallowsforthecomparisonofnearlyidenticalOBsandGBsbythesameissueron