Greenleaf Associate, Liz Hypes, synthesized information gathered on green bond issuance and REITs for a commentary by S&P Global Ratings – Credit Research. First developed in 2007 by the World Bank and European Development Bank, a green bond is like a conventional bond except the debt financing issued must be used to finance or re-finance new or existing “green” activities or projects. Despite being relatively young, the green bond market has grown exponentially in recent years, and will likely continue to do so over the next decade. Service providers and underwriters providing second opinions, like current market participants CICERO and Vigeo, are becoming a stable component of the green bond market. Verifications from third-parties validate a bond’s “green” label, and, in doing so, alleviate investor fears over greenwashing and fraud.
Green bond project financing aligns well with REITs facing climate risk as it attracts a broader range of investors, enables meeting changing regulatory requirements, and increases their financial performance as well as their public image. Likewise, because of the operational and reputation benefits of greening portfolios (i.e. decreased credit risk, higher occupancy, increased energy efficiency), the adoption of green building principles and non-financial performance metrics are a better value proposition for managers like REITs and green bonds offer them a more secure, diversified debt portfolio for project financing.
Please see Liz’s full summary here.