As countries embrace green bonds to finance climate projects, a key question emerges: do these eco-friendly bonds actually lower borrowing costs through the so-called “greenium,” or do they add to fiscal strains? The “greenium,” which is a green premium, refers to the yield discount that issuers enjoy when investors accept lower returns on green bonds compared to regular bonds.
In theory, this gives governments cheaper capital for sustainability projects. In practice, the picture is mixed. Emerging economies like Egypt, Nigeria, and Seychelles offer case studies in how green bonds can unlock new funding but also highlight risks of greenwashing, transparency gaps, and rising debt burdens despite the green label.
What Is The ‘Greenium’ In Green Bonds?
Green bonds are debt instruments whose proceeds are pledged to environmental projects. Over the past decade, high investor demand for sustainable investments has often let issuers price green bonds at slightly lower yields than conventional bonds. This yield discount, known as the greenium, signals strong investor interest in climate action and can save governments money.
For example, when Egypt issued the Middle East’s first sovereign green bond in 2020, investor enthusiasm was extraordinary. The $750 million issue was seven times oversubscribed, allowing Egypt to cut the coupon by 50 basis points (from 5.75% to 5.25%) during the sale. The final yield came in about 12.5 bps below Egypt’s normal dollar bonds, achieving the country’s lowest-ever five-year borrowing cost.
This greenium reflected confidence that Egypt would use the funds for projects like clean transport and renewables, as outlined in its Green Bond Framework, and brought “16 new investors” to Egyptian bonds who hadn’t bought its regular debt.
However, the greenium is not guaranteed or uniform. Nigeria’s sovereign green bonds, Africa’s first, saw high demand as well, but in one case, the pricing was virtually on par with similar non-green bonds.
A study found Nigeria’s 2017 green bond yielded ~1.348% versus ~1.45% for a comparable conventional bond (a slight saving), but a 2019 green issue actually had a higher yield than a shorter vanilla bond.
In other words, Nigerian green bonds “were priced similarly overall,” suggesting no significant cost advantage in that market. This underscores that investor perception of credit risk remains paramount; a green label alone doesn’t drastically change what buyers will charge if other factors (maturities, market conditions) differ.
Tapping Global Funds, Lowering Costs?
To help more emerging economies reap the potential benefits of green bonds, international agencies have launched the Global Green Bond Initiative (GGBI). Announced by the European Union in 2023, GGBI is a coalition of development finance institutions (EIB, EBRD, World Bank affiliates, and Green Climate Fund, among others) aiming to “increase [developing countries] access to capital” for climate projects.
The plan combines technical assistance, helping governments set up green bond frameworks and pipelines of projects, with a “dedicated de-risked fund” that will act as an anchor investor in green bond issues.
By providing credit support and expertise, GGBI hopes to boost investor confidence, lower issuance costs, and catalyse up to €15–20 billion in new green investments. In July 2025, the Green Climate Fund approved a $227 million equity investment in GGBI’s fund to support green bonds in 10 countries (from Egypt to Kenya and Bangladesh), often paired with EU grants to “lower borrowing costs for bond issuers” through guarantees or interest subsidies.
Early results are promising in terms of market development. Egypt’s green bond, for instance, was supported by World Bank advisors and has since inspired others in the region. Nigeria’s programme, backed by FSD Africa and others, established frameworks that led to oversubscriptions.
And Seychelles’ pioneering “blue bond” in 2018, although not under GGBI, demonstrated how creative structuring can make green debt viable: the tiny $15 million ocean-focused bond was partially guaranteed by the World Bank and had a GEF-funded concession to cover part of its interest, significantly reducing the cost for Seychelles.
That bond unlocked funds for marine conservation, but without those international supports, investors would have likely demanded a prohibitively high yield from the small island nation.
Green Branding Vs Fiscal Realities
Despite these benefits, critics warn that green bonds are still debt and can even lull governments into a false sense of security. Egypt, for example, entered the green bond market with an already high public debt (~87.5% of GDP in 2020). The $750 million raised was a fraction of its financing needs, and Egypt’s debt-to-GDP continued climbing afterwards, exacerbated by currency and fiscal pressures.
Issuing a green bond doesn’t fix underlying budget deficits; if anything, it adds to the debt stock (albeit hopefully for a good cause). “Green or not, these obligations must be repaid, and investors will care about the country’s overall creditworthiness,” notes one analyst.
Rating agencies like Fitch have stated that a sovereign’s credit rating is unaffected by the use of proceeds. Green bonds don’t inherently improve a nation’s ability to pay. In fact, there’s a risk that a government might pursue high-profile green projects via debt while neglecting tougher fiscal reforms. Over-reliance on borrowing, even at a slight greenium, could worsen fiscal fragility if growth or revenues disappoint.
Another concern is greenwashing and transparency. Investors pay a premium only if they trust that green bond proceeds truly deliver environmental results. Weak reporting or misallocated funds could erode that trust.
Market experts note that the “greenium” has been modest and even “disappearing” recently as more issuance floods in and scrutiny rises. Cases of green bonds funding dubious “green” projects have drawn criticism, making it vital for countries to uphold rigorous standards.
The Global Green Bond Initiative puts emphasis on building “credible and coherent green bond frameworks” and high-quality reporting to tackle this. Without such safeguards, a country risks reputational damage and losing access to the very cost advantages green bonds can offer.
In conclusion, the GGBI and the broader green bond movement offer a double-edged sword. On one side, they unlock new pools of climate-focused capital and can slightly trim financing costs, which is a welcome help for nations striving to fund renewable energy, clean transport, or climate resilience.
On the other side, green debt is still debt: it must be managed within sustainable limits and with full transparency. The experiences of Egypt, Nigeria, and Seychelles show that while a greenium is real, it tends to be small and contingent on investor trust. As a recent energy finance briefing put it, the greenium’s “modest size and declining trend raise questions about its long-term effectiveness.”
Ultimately, the true test of initiatives like GGBI will be whether countries can mobilise green finance without greenwashing and invest the proceeds wisely so that today’s green bonds don’t become tomorrow’s heavy debt burden.
The goal is a virtuous cycle: lower capital costs funding high-impact green projects that boost growth and revenue, improving fiscal health. Achieving that will require discipline and genuine commitment to the “green” in green bonds, beyond the marketing appeal.