“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.

There is currently no market standard for what constitutes a Green Bond; however the Green Bond Principles were developed by a committee of representatives from bond issuers, investors, and environmental groups.  One of the recommendations of the Green Bond Principles is transparency and disclosure to investors.  One suggestion was to encourage issuers to have their green projects assessed by external climate experts who can provide opinions to investors.  In July, 2014, the District of Columbia Water & Sewer Authority (“DC Water”) issued the first century (100 year maturity) Green Bond that included an independent second party opinion. The proceeds of that 2014 bond were used to finance a portion of the DC Clean Rivers Project, which constructs tunnels to transport sewer overflows to the Blue Plains treatment facility.  In October, 2015, DC Water issued another $100 million of Green Bonds that included a priority order period for green portfolio and retail investors.  DC Water is currently devising a third party attestation program for its Green Bond reporting and disclosures in order to provide third party verification of evidence of post-issuance compliance with the elements of its Green Bond program.  DC Water hopes that third party attestation will be viewed as a best practice and will assist investors and eventually result in improved pricing.

In addition to DC Water, the State of Massachusetts, Central Puget Sound Regional Transportation Authority and the New York State Housing Development Corporation have issued Green Bonds since 2013.

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