EUROPEAN CENTRAL BANKEUROSYSTEMWorking Paper SeriesEnvironmental score and bond pricing:Andrea Zaghini,it better be good,it better be greenNo3176Disclaimer:This paper should not be reported as representing the views of the European Central Bank(ECB).The views expressed are those of the authors and do not necessarily reflect those of the ECB.AbstractWe provide empirical evidence that the pricing of green bonds tends to be highly sophis-ticated and based on a two-tiered approach.When buying a green bond,investors do notlook only at the presence of a green label,but also consider additional characteristics of thebond that involve the environmental score of the issuer and the soundness of the underlyingproject.By comparing the yields at issuance of green bonds to those of a matched controlsample of conventional bonds,our baseline specification identifies a premium of 16 basispoints for the green label alone.Furthermore,when the environmental score of the issuer isin the top tercile of the cross-sectional distribution of such an indicator across the analyzedissuers,the greenium nearly doubles.Green certification and periods of heightened climateuncertainty also significantly affect the size of the greenium.JEL Codes:G12,G15,C21,C58,Q56Keywords:Sustainable finance;ESG scores;Green bonds;Greenium;Corporate bonds.ECB Working Paper Series No 3176