What type of investors might have concerns about greenium?
a.Investors that want to be aggressive
b. Investors that want to invest in oil and gas industries
c.Investors that don’t want to pay a premium or that want to avoid expensive issues
d.Risk averse investors
The Correct Answer and Explanation is:
Correct Answer: c. Investors that don’t want to pay a premium or that want to avoid expensive issues
Explanation
The term “greenium” refers to the premium that investors are often willing to pay for green bonds or environmentally sustainable investments compared to conventional (non-green) bonds. These green bonds fund projects with environmental benefits, such as renewable energy or climate adaptation initiatives. Because of increasing demand from environmentally conscious investors and limited supply, green bonds can trade at higher prices (and thus lower yields) than similar non-green bonds. This yield difference is what is referred to as the greenium.
Investors who are price-sensitive or focused on cost efficiency may have concerns about paying this premium. These include investors that don’t want to pay a premium or want to avoid expensive issues, making option (c) the correct answer.
Such investors typically focus on maximizing returns relative to cost, and may be skeptical of accepting a lower yield solely because an investment is labeled as “green.” They may argue that unless the green bond offers better risk-adjusted returns or some strategic benefit, the higher price (lower yield) is not justifiable. This concern is especially relevant for institutional investors with strict performance benchmarks or value-focused investors who prioritize financial fundamentals over environmental or social goals.
In contrast:
- Option (a) is incorrect because aggressive investors are generally return-focused and may take higher risks, but that doesn’t directly relate to concerns about greenium.
- Option (b) is incorrect because while oil and gas investors may avoid green investments, their concerns are more about industry exposure than bond pricing.
- Option (d) is also not the best answer—risk-averse investors may actually prefer green bonds if they perceive them as more stable or aligned with long-term sustainability trends.
In summary, investors concerned with avoiding overpayment or preserving yield are most likely to have concerns about greenium.
