ESMA provides analysis on issuers’ potential benefits from an ESG pricing effect

ESMA has published an article examining the European sustainable debt market to determine if there is an ESG pricing effect, commonly known as the “Greenium,“ in various types of sustainable debt instruments. ESMA’s analysis found that as of March 2023, it couldn’t confirm a systematic pricing benefit for any specific ESG-labelled debt type. However, it noted that issuers of ESG bonds did benefit from statistically significant pricing advantages in the past, primarily driven by their issuer-level ESG credentials.
The sustainable-labelled debt market has experienced significant growth, with a 28% increase in the first half of 2023 and a 663% increase since the first half of 2018. Existing research has suggested that sustainable-labelled debt issuers might benefit from pricing advantages, but this evidence has primarily focused on green bonds.
ESMA’s analysis explored the existence of an ESG pricing effect across various ESG-debt instruments, not limited to green bonds, and examined whether issuer-level ESG credentials could explain the phenomenon. The analysis covered a dataset of 8,696 bonds from issuers in the EEA, with a total outstanding face value of EUR 3.7 trillion.
The article also highlights the relevance of this analysis to ESMA’s financial stability and investor protection mandates. Pricing distortions in the ESG debt market could impact market stability and investor trust. The analysis is focused on financial stability concerns and contributes to ESMA’s goal of monitoring key market developments in sustainable finance.