Building a Green Living : Measuring the green bond premium on the Swedish real estate market

Background: With the first green bond being issued in 2008 as a joint venture between World Bank Organization and the Swedish bank SEB the financial instrument has made an impact on the financial markets. With a high demand for sustainable investments in Sweden partly due to policies a premium for the green bonds is to be expected at least according to theory. The real estate market has adapted to the increased demand for green investments by moving more towards green bonds, and rightfully so as it is one of the largest polluters seen by sector. In result, it is also one of the largest issuers of bonds which creates an excellent opportunity to research the industry as there is plenty of data available. Purpose: This report will examine the premium of green bonds in the Swedish real estate market. Furthermore, it will also examine the effects of Covid-19 and to what extent this pandemic had an impact on green bonds. Method: The thesis examines the Option Adjusted Spread (OAS) of 166 bonds of 9 different companies from the start of 2016 to December 2020 within the Swedish real estate market. Control variables such as Company risk, Market risk and Macroeconomic variables were used in an OLS regression to estimate the premium. The effect of the Covid-19 pandemic was also examined. Conclusion: After analyzing 53 green and 113 conventional bonds no significant results were found on how premium differs between green and conventional bonds. However more general findings were found that suggest bonds become more sought during the Covid-19. It was further found that the green bond market is rapidly growing and may in a few years be in a better position to be examined