Wednesday, May 18, 2016

First Water "Climate Certified" Green Bond Issued by San Francisco Public Utilities Commission

$240 Million Green Bond to Finance Stormwater and Wastewater Management Projects; California Green Muni Bonds Now Total Over $1.4 Billion

The San Francisco Public Utilities Commission (SFPUC) is the first entity in the world to issue a green bond certified under the new Water Climate Bonds Standard.  The standard specifies the criteria that must be met for a bond to be labelled “green” when earmarked for funding water-related, low carbon initiatives.

Proceeds from the $240 million Wastewater Revenue Bond will fund eligible projects in sustainable stormwater management and wastewater projects.

“Climate Bonds Certification for this wastewater bond, a U.S. and global first, is an important evolutionary step for green infrastructure financing," said Harlan Kelly Jr General Manager SFPUC. “Our City’s sewer system was built to last a hundred years; it’s only fitting that we use the latest, most innovative financing techniques to ensure our infrastructure can overcome future environmental challenges while meeting the needs of our community for the next 100 years.”

Certified Water Climate Bond Vote of Confidence

“Having a prominent public authority like SFPUC issue the first bond certified against the Water Climate Bonds Standard is a tremendous vote of confidence. It’s a public demonstration that the Standard provides verifiable, science-based criteria for evaluating water-related bonds that are relevant and applicable for the international bond market,” said Sean Kidney, CEO of the Climate Bonds Initiative.  “SFPUC is leading by example with this certified bond issuance; they open a path for other public authorities to issue certified climate bonds for water projects.”

Sean Kidney, Climate Bonds Iniatiative

Treasurer Chiang: SFPUC Bonds Help Meet Market Need

California State Treasurer John Chiang has been showing leadership in the growing green bonds market.  His office purchased $200 million in green bonds recently (see CalGreenFinance story here) and he is looking to do more to boost the market.  He also sits on the Climate Bonds Standards Advisory Board, which oversees standards such as the Water Bond Standard used for the SFPUC bond certification.

State Treasurer John Chiang seeks to
"grow the green bond market" in U.S.

"I am working to grow the green bond market in California and the United States," said Treasurer Chiang.  "There is great demand for environmentally related securities. Unfortunately, the supply remains tight, limiting our ability to finance critical projects for combatting climate change. The San Francisco Public Utilities Commission waste water green bonds, which have been certified as meeting the 'Climate Bonds Standard,' are a step toward meeting this market need.” 

Sustainalytics Provided Certification to International Standards

International research and analysis firm Sustainalytics provided third-party verification that the SFPUC bond conforms with the Climate Bonds Standard.  According to the Sustainalytics report on the bond, "SFPUC’s approach to selecting projects and managing green bond proceeds is robust, and its reporting on the use of proceeds, with (key performance indicators) that capture energy and water impacts, is transparent ... and credible." (a copy of the Sustainalytics report is available here). 

Sustanalytics Analysis says
SFPUC Green Bond is "robust and credible"

CERES: Historic Step To Advance Water Infrastructure Financing

"San Francisco’s leadership in issuing the first certified green water bond is a historic step in advancing this nascent but important market to finance sustainable water infrastructure,” said Mindy Lubber, president of the nonprofit group Ceres, who collaborated with Climate Bonds Initiative and others to develop the standard. “Water infrastructure is vastly underfunded and it’s especially so with sustainable water infrastructure, which is critical for helping us adapt to the extremes of climate change. Enacting this standard will be extremely helpful in catalyzing credible growth in this hugely important market.”

Mindy Luber of Ceres calls SFPUC bond "historic step"

“We see green bonds as a fantastic way to seek performance and impact for our clients in one package, and standards on certification and reporting are essential. The SFPUC’s issuance of a certified green bond is a big step forward—we strongly believe that bonds like this will spur credible growth in this important market and boost investor confidence that green bonds are producing positive and meaningful environmental impact,” said Amy Hauter, ESG Research Analyst at Brown Advisory.

Water Bonds a Subset of Green Bonds

Water bonds are a subset of “green bonds,” a fast-growing financial instrument for earmarking private financing to fund environmental projects. The green bond market has grown rapidly since the first issuance less than ten years ago, reaching $41.8 billion globally in 2015.  So far in 2016, over $23 billion in labelled green bonds have been issued.  California is becoming a leader in both municipal and corporate green bond issuance.  Apple issued a $1.5 billion corporate green bond earlier this year.  Over the past few years, there has been over $1.4 billion in government green bond issuances.

The Water Climate Bonds Criteria were created to provide investors with verifiable, science-based metrics for evaluating bonds earmarked for financing sustainable water infrastructure projects. The Criteria will also help corporate, municipal and other bond issuers expand their green bond offerings into water-related projects. These criteria can be used to evaluate projects as diverse as energy or industrial water efficiency, reuse, catchment or watershed restoration and or large-scale water supply infrastructure development.

SFPUC Bond Boosts California Green Muni Bond Issuances

With the SFPUC bond described above, California government agencies have now issued over $1.4 billion in labelled green bonds.  The chart below summarizes the issuances to date.

California Green Muni Bond Issuances
IssuerDateAmountGeneral Purposes
State of California10/7/2014$300,000,000Mass Transit, Clean Water, Energy Efficiency
San Francisco Public Utilities Commission5/20/2015$32,025,000Renewable Energy
City of Los Angeles6/4/2015$188,755,000Wastewater, Digester, Water Purification
East Bay Municipal Utility District6/17/2015$74,335,000Clean Drinking Water, Conservation, Flood Protection, Renewable Energy, Biodiversity
City of Los Angeles6/30/2015$100,835,000Wastewater, Water Purification, Digester
San Diego Unified School District1/5/2016$100,000,000Energy Efficient Buildings, Renewable Energy
IBank4/28/2016$410,735,000Clean Water, Water Pollution Control
San Francisco Public Utilities Commission5/10/2016$240,000,000Clean water, wastewater
Total$1,446,685,000(prepared by Michael Paparian 5/18/16)