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There’s no evidence of investors paying a premium for debt offerings that include sustainability features, according to new research from the European Securities and Markets Authority (ESMA).

The regulator reports in a new paper that analysis of the €1.7-trillion sustainable debt market concluded that there’s no systematic pricing benefit for any type of ESG-labelled debt. The research goal was to confirm the existence of the so-called “greenium,” a premium that investors were allegedly willing to pay, by forgoing returns, in exchange for enhanced sustainability.

The research did reveal that, in the past, issuers of environmental, social and governance (ESG) bonds have benefitted from pricing premiums driven by individual characteristics. However, issuers’ “public sustainability commitments do not impact the pricing of their bonds.”

ESMA noted that the potential existence of a greenium is relevant for both financial stability and investor protection.

From a financial stability perspective, the report said that “significant price distortions can trigger increased levels of volatility and rapid reductions in asset prices.”

Greenwashing also remains a central concern for investor protection. Should issuers benefit from a pricing advantage that’s tied to their sustainability character, and if that character isn’t accurate, “investors may feel misled, which can subsequently hamper investor trust,” the report said.

The research findings are “encouraging,” the report said, in that they suggest “price divergences between sustainable and conventional debt instruments seem to stem from the same fundamental risk factors, for example an issuer’s credit worthiness, and are not purely driven by a bond’s ESG status.”

Yet, where ESG factors do weigh on results, there’s an issue. Said the report, “The results also indicate a limited appetite in the market to forego returns,” potentially limiting any future transition toward a sustainable economy.

Something to watch is the research didn’t discount the possibility of a greenium popping up in sustainable debt markets, given they’re evolving and growing.

Sustainable debt issuance has grown rapidly in recent years, rising by almost 700% since the first half of 2018 and by 28% over the past year (to mid-2023), the research found. Strong investor appetite for sustainable investments is a driver.