We provide empirical evidence that the pricing of green bonds tends to be highly
sophisticated and based on a two-tiered approach. When buying a green bond, in-
vestors do not look only at the green label of the bond but also consider additional
characteristics that involve the soundness of the underlying project and the envi-
ronmental score of the issuer. By comparing the yields at issuance of green bonds
to those of a matched control sample of conventional bonds, we identify a premium
of 16 basis points for the green label alone. However, when the environmental score
of the issuer is in the top tercile of the cross-sectional distribution, the greenium
increases up to doubling. Green certification and periods of heightened climate un-
certainty also significantly influence the size of the greenium. Additionally, we find
that this pricing mechanism fully emerged only after the Paris Agreement came into
force in late 2016.