Two U.S. senators recently introduced legislation that would provide up to $200 million annually in “Climate Change Bonds.” According to the international Climate Bonds Initiative (CBI), $41.8 billion worth of green bonds were issued in 2015. The CBI has set a target of $100 billion in green bonds in 2016. Moody’s Investors Services says global issuance of green bonds could surpass $50 billion in 2016. Either way, there is a lot of money out there for green projects. Today we will take a look at green bonds and consider how they could aid your compliance efforts.
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How Green Bonds Work
According to the CBI, green bonds were created to fund projects that have positive environmental and/or climate benefits. The majority of the green bonds issued are green “use of proceeds” or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet. There are also bonds for specific projects that are backed only by the assets and balance sheets of the projects or group of projects.
The CBI maintains data about labeled green bonds, i.e., bonds that earmark proceeds for climate or environmental projects and have been labeled as “green” by the issuer.
Trends in Green Bonds’ Growth
According to Moody’s, certain factors that are fueling the growth of green bonds worldwide include:
- Momentum from the 2015 United Nations Climate Change Conference and the signing of the Paris Agreement in April that will advance the development of carbon regulations;
- Continuing institutional, high net worth and retail investor appetite for green bonds;
- Regulatory encouragement to issue and invest in green bonds; and
- Newly issued guidelines for such bonds in China and India.
The World Bank points out that another key driver of the green bond market is the growing number of asset managers with mandates to increase investment in instruments that support low-carbon growth.
U.S. Climate Change Bonds Legislation
Senators Barbara Boxer and Richard Durbin are sponsoring legislation that would authorize the Treasury Department to issue what the senators are calling “Climate Change Bonds.” These savings bonds would be purchased by Americans concerned about climate change. The proceeds would support investments that help states and local communities prepare for the impacts of climate change. Revenue from the bonds would go into a new “Adapt America Fund” administered by the secretary of commerce. States, municipalities, and other public entities would apply to the Fund to finance climate change adaptation and infrastructure resilience projects. To leverage funds raised by the sale of Climate Change Bonds, selected entities must match at least 25% of the funds they receive.
Cities and States Push for Green Growth
If you plan on operating a facility in a growing number of California cities, you will be required to install solar power. Santa Monica is the most recent city to put that requirement in effect. And the city claims that upfront costs for commercial buildings will increase by 0.75% while long-term electricity costs will be reduced by 11%, on average.
This is just one example of how cities are mandating green growth. The Green Cities Bond Coalition has issued a guide for cities on how to issue green municipal bonds. Projects eligible for green bond proceeds include infrastructure projects, waste management projects, and projects related to industrial efficiency.
Takeaway
This is merely the tip of the iceberg in the move toward green bonds. If you are responsible for compliance costs at your facility, the availability of green bonds for local infrastructure and/or facility upgrades could help you keep your energy costs down.
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