Local Governments Warming to Green Bonds

Sustainable City Network article (2017-02-17) discussed the increasing use of “green bonds” by states and local governments to build more environmentally friendly and more efficient infrastructure. The article noted that as many states impose green infrastructure mandates or implement Renewable Portfolio Standards (RPS) for renewable energy, there has been increased pressure on local governments to find alternative forms of financing to fund these types of projects. From the article:

This is where green bonds enter the picture. These debt instruments, constructed precisely to bring capital to sustainable projects – whether that is renewable power, battery storage or climate change adaptation projects – can provide an alternative means for cities to invest in the infrastructure they need to remain economically competitive in a manner that is both environmentally and ecologically sound. …

Even for those municipalities without an immediate, acute focus on climate change, green bonds are seen as a viable financing option. Because green bond investors are spread around the world but the primary beneficiaries of green financings are more concentrated by region (or even by country), some municipalities could appeal to a broader base of investors by issuing green bonds. What’s more, issuers and investors alike could stand to benefit from certain municipal bond tax-exemptions.

The article stated that in the first half of 2017, United States municipalities accounted for a majority of the 101 green bonds issued globally by local governments and states, with a value of roughly $18 billion.

The article also noted that green bonding in the United States lags behind China and Europe due to the lack of a cohesive policy for carbon mitigation and adaptation and clear regulations for green bond practices. However, the article believed green bonding will continue to play an increasingly important role over the next few years at the local government level:

So, with a stricter federal policy on climate change unlikely to materialize any time soon, it will be down to states, cities and corporations to drive future green bond growth – with much of the investment for green projects coming from investor-owned and public utilities to meet new standards.