“Green Bonds” are a relatively new trend in the bond market. They offer investors an opportunity to invest in “green projects” that help mitigate climate change. Categories of green projects include renewable energy, energy efficiency, sustainable waste management, sustainable land use and biodiversity conservation. Green Bonds have similar features to regular bonds and can be issued on a tax exempt basis (if certain criteria are met). The market eventually hopes that Green Bonds will receive favorable pricing because more investors will be seeking out such socially conscious investments in order to be viewed as good global and environmental citizens.
Initially, one of the issues with Green Bonds was that there was no independent assessment system to allow investors to review the probability that the project being financed with Green Bonds would achieve positive environmental outcomes. This type of assessment was a concern, especially of institutional investors that normally purchase Green Bonds, since they want to track the environmental impact of their investments. However, in March, 2016, Moody’s Investors Service rolled out methodology for the Green Bonds Assessment (“GBA”) and recently provided its first GBA of a bond to be issued in the United States. The Upper Mohawk Valley Regional Water Finance Authority (in New York) is issuing bonds (the “Bonds”) to finance and refinance improvements for increased capacity and improvements to the treatment plant and pumping and regulating stations to assure safe drinking water. The Bonds received a rating of GB1 which is the highest rating provided under the GBA. The GBA is determined based upon five factors: organization; use of proceeds, disclosure of use of proceeds; management of proceeds; and ongoing reporting and disclosure on environmental projects financed or refinanced with bonds. In the case of the Bonds, the Mohawk Valley Water Authority (“MVWA”) was found to be effectively organized and properly staffed and has previously disclosed information on its projects though its annual comprehensive financial reports and through its website. In addition the MVWA has committed to track the net proceeds of the Bonds and provide disclosure regarding the environmental benefits. The disclosure will be done based on certain key metrics identified by Moody’s in order to permit comparative analysis in the future.
The GBA is one more step forward in promoting Green Bonds in the marketplace.
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