Seix Muni Perspectives - Green Bonds (July 2017)
Written by Ronald Schwartz, CFA and Scott Andreson
Municipal green bond issuance has increased significantly over the past four years since Massachusetts became the first state to offer tax exempt bonds designated as ‘green’ in 2013. While only a small part of the municipal market at approximately $19bn in outstanding bonds, green designated tax exempt bond issuance has been accelerating over the past two years, with over $5bn issued YTD. There is growing domestic and global demand for sustainable, responsible, and impact (SRI) investing, despite the U.S. recently withdrawing from the Paris Agreement. Global green bond issuance increased 92% in 2016 to over $95bn and is forecasted to top $120bn this year (see chart below). U.S. municipal bonds since their inception have been used for capital projects and infrastructure that have delivered benefits that today could also be construed as green and socially responsible. While we have not seen much pricing differential between an issuer’s regular bonds and their green labeled bonds, we do believe that investor demand is growing for SRI assets, and green muni bonds could outperform as a result.
Bonds whose proceeds are specifically used for environmental, climate, or other sustainable purposes can be designated as green. Green bonds are self-labeled by the issuer with a voluntary set of rules from the Green Bond Principles (GBP). Under GBP, issuers can use green bonds for renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, clean water, and/or drinking water. READ MORE (292 KB PDF)