Greenium and brown discount

The greenium designates the favorable yield gap enjoyed by certain transition-aligned assets, typically green bonds which can fund at a slightly lower cost than an equivalent conventional bond. Symmetrically, the brown discount designates the valuation penalty applied to carbon-intensive assets, reflecting the market's anticipation of transition and stranding risk. These gaps reflect the gradual integration of climate risk into asset prices, but remain small, volatile and empirically contested. For an insurer managing a massive bond portfolio, the existence of a greenium influences the trade-off between current yield and transition risk exposure. The academic debate concerns the persistence of these gaps: too strong a greenium would signal an efficient market pricing the transition, but a zero greenium would instead suggest climate risk remains underpriced.