NEW YORK — Bonds backing clean energy and other sustainable initiatives are booming. Investors are snapping up green bonds at the fastest pace on record,
as big banks like Morgan Stanley and Bank of America Corp. pile in with
new issuance to feed the growing appetite for socially responsible
investments.
More than $16 billion of green bonds have been sold this year
worldwide following issuance of $32.6 billion in 2014, according to data
compiled by Bloomberg. Newcomers like Morgan Stanley are raising the
debt to finance solar- and wind-powered projects fueling issuance in the
U.S. and putting the market on a path to grow by more than 50 percent
by the end of the year, according to Standard & Poor’s.
“What is called clean or alternative energy now is just going to be
called energy in the future, and we want to be a part of that,” said
Matthew Duch, a money manager at Calvert Investments in Bethesda,
Maryland, which oversees more than $13 billion in assets, after
purchasing Morgan Stanley inaugural green bond offering on Wednesday.
“The bonds are attractive and you get to be a part of progress.”
Green bonds, which have been sold to back restoration of waterways in
Chicago and help Toyota Motor Corp. finance vehicles that are powered
by hybrid or alternative fuel, are gaining popularity with companies,
attracted to a growing investor base looking to buy securities backing
renewable projects. Morgan Stanley will use its debut $500 million green
bond to fund the development and construction of wind farms and solar
energy generation, according to a regulatory filing.
Green Pledge
Bank of America, the second-largest U.S. bank, issued a $600 million
in green bond to fund energy-efficiency and renewable-power projects in
May, Bloomberg data show. The lender sold its first green-bond with a
$500 million offering in 2013. The securities are part of a pledge to
commit $50 billion over 10 years for low-carbon projects through funding
and banking services. Despite their growth rate, green bonds are still about one- fifth of 1 percent of the global bond market.
The debt gained 7.6 percent in 2014, more than the 5.6 percent
advance in corporate bonds of similar maturity in the U.S., according to
Bank of America Merrill Lynch Indexes. The securities have returned 0.8
percent this year compared with a gain of 2.6 percent for the broader
market.
Slowly Embracing
“Some issuers have embraced it, others are slowly jumping on and
others haven’t gotten there yet,” said Caroline Cruickshank, managing
director in Bank of New York Mellon’s corporate trust group, which acts
as a “plumber” for the market, providing everything from third-party
monitoring of deals to fiduciary oversight.
The debt still faces several hurdles, namely that there isn’t yet a
legal definition for what exactly constitutes a green bond, according to
Cruickshank. “Further adoption is likely to be driven by utility issuers and the
standardization of the criteria”, Elchin Mammadov, an analyst at
Bloomberg Intelligence, wrote in a report Thursday.
Banks, including Citigroup Inc., Bank of America, JPMorgan Chase
& Co. and Credit Agricole SA, which created a common criteria for
the debt to act as a catalyst for the development of the market in 2014,
updated their standards in March, according to trade group
International Capital Market Association. Complying with the criteria is voluntary and there are no enforcement mechanisms if an issuer doesn’t, according to the ICMA. “Issuers are getting more creative, and as they do the investors will
come,” said Marshal Salant, global head of alternative energy Finance
at Citigroup. “The question is when.”
Copyright 2015 Bloomberg
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