New York City’s comptroller has a plan to make his city the first major American metropolis to get in on the green bond market.
Bonds are a type of debt used by municipal, state, and national governments to fund infrastructure and various other projects. Green bonds specifically are devoted to projects that encourage greenhouse gas emission reductions, sustainable infrastructure, and other environmentally friendly efforts. Green bonds were first developed by the World Bank in 2008 to attract investors who want to be conscientious about the ecological impact of their investments, and offer a level of risk and rate of return comparable to traditional debt.
New York City already has a $19.5 billion plan to bulk up the climate resiliency of its infrastructure in the wake of Hurricane Sandy. The city’s total capital commitment for all its planned projects from 2015 through 2018 adds up to $35.2 billion, and $26.6 billion (75 percent) will be funded through bonds issued by the city. The new effort to cut New York City’s greenhouse gas emissions 80 percent by 2050 will also require financing the installation of more renewable capacity, efficiency improvements for existing buildings, and better efficiency codes for new buildings — and for now, that financing will be helped by the city’s traditional bond market.
So the proposal put forward by New York City Comptroller Scott Stringer would have the city work through its existing bond offerings to identify those that could be marketed as green bonds, and begin identifying all-new projects after that. As such, the green bonds would be issued by the three major bodies that already handle the city’s debt: General Obligation bonds, Transitional Finance Authority bonds, and Municipal Water Finance Authority bonds.
“This would allow investors to spur the financing of environmentally friendly projects,” Stringer told the Wall Street Journal. “We would be the first city to do this. We were the catalyst for the change in banning smoking in restaurants, trans fats. We could serve as a model for the municipal bond marketplace as well.”
So the goal would be multi-fold: to expand the city’s investment base by attracting green-conscious investors, to rework the city’s own decision process to prioritize environmentally beneficial projects, to establish a model other cities could replicate, and to drive an expansion in the green bonds market for everyone.
CREDIT: Office of the New York City Comptroller
In 2013, something between $10.9 billion and $14 billion in green bonds were issued worldwide. Bloomberg New Energy Finance anticipates green bonds could top $40 billion for 2014 by the time the year is over. Massachusetts, California, and the District of Columbia have all started incipient green bond programs, and the market for all the U.S. reached $3.24 billion as of July 1 this year.
Of course, on a sheer numbers basis the green bond market remains tiny: at best somewhere over $50 billion in a global financial market that has many, many trillions of dollars to throw around. And without the all-encompassing market incentives that would be created by putting a price on carbon emissions and on natural capital, green bond programs remain something of a marketing effort that relies on the virtue of individual investors. But concern with the long-term effects of climate change on financial portfolios is gaining momentum with investors around the world, which will drive more of them toward offerings like green bonds.
Like the fossil fuel divestment movement, green bonds will have to start small and then build social pressure by taking on bigger and bigger actors and incrementally expanding the reach of their market.
As Stringer’s proposal points out, various institutions like the World Bank and the International Finance Corporation have built criteria for identifying green bonds, but no uniform standard exists. So New York City will need to develop its own, along with a monitoring and reporting process to make sure the investments are used as promised. The program would also have to be approved by New York City’s Office of Management and Budget (OMB), and would be jointly managed by the OMB and the Comptroller’s office.