In June 2015, the City Council of Portland, Oregon, began exploring alternative financing options for environmentally responsible capital projects. The city aims to make use of a rapidly evolving market for green bonds to supplement its traditional financing methods. Portland and other issuers are defining their own policies and procedures, following the lead of the International Finance Corporation and World Bank.
Green bonds are a relatively new feature in the muni market. They provide issuers that use bond proceeds on environmentally conscious projects to identify the securities as “green” in an effort to attract environmentally conscious investors. Although the market is still developing, examples of eligible projects may include energy efficiency and conservation projects, renewable energy generation, waste management, and clean water programs. The concept originated in Europe and migrated to the United States at the end of the last decade. According to Moody’s Investor Service, green bonds accounted for $37 billion in the domestic market last year (including global and corporate issuance). The Commonwealth of Massachusetts entered the green bond market in July 2013 with a $100 million issuance that was dedicated to environmentally conscious public projects. The following summer, the District of Columbia Water and Sewer Authority issued $350 million for its first green bond. The State of California and New York, New York – along with Portland and many U.S. municipalities, both small and large – are considering future green bond issuance.
Portland, like most municipalities, already invests in a significant amount of infrastructure that could potentially qualify for green bond eligibility; however, city staff has not committed to specific projects for issuance. The Portland City Council has directed staff to develop a refined framework before it prepares for green bond issuance – potentially during 2016 – and the city has started to identify criteria for eligible projects. It is also developing comprehensive and transparent reporting policies that will help provide credibility to this developing marketplace. As a leader on climate-related matters (initiatives include Portland’s 2009 Climate Action Plan and its participation in the C40 Cities Climate Leadership Group), Portland has a unique opportunity to become a thought leader in the evolving green bond market.