Who Benefits from the Bond Greenium?

Do green firms fully benefit from lower yields than brown firms? Or instead, do financial intermediaries pocket in part of the greenium? We study these issues focusing on US firms active in the bond market from 2005 to 2022. We show that the greenium is lower on the primary than on the secondary bond market. This main result is robust to a wide variety of robustness checks. Underwriting dealers capture around 80% of the greenium. Based on a theoretical model, we document two channels for this finding related to uncertainty on investors’ future climate concerns and to a lack of competition among dealers. Microstructure frictions in the bond primary market appear to decrease the financial incentives for firms to become greener.