Following the model of the World Bank and the International Finance Corporation, several state governments and private companies are ramping up their issuance of green bonds to finance low-carbon, environmentally beneficial projects in renewable energy, clean water, sustainability, biodiversity, energy efficiency, land conservation, river revitalization, drinking water, and infrastructure.  These governments face a host of needs driven by the impacts of climate-change.  But with already stretched budgets, financing sustainable infrastructure has been a challenge.

Although traditional municipal bonds have been used to finance environmental projects in the past, what makes green bonds unique is that they are earmarked specially for environment-friendly projects.  Municipal bonds, with certain exceptions, have always been non-project specific.  The sustainability linkage taps into investors’ increasing desires both for more transparency and to become good stewards of the environment.  Green bond issuance is growing rapidly – from $11 billion in 2013 to an estimated $40 billion this year – bringing the global market to around $500 billion.

State & City Governments

In 2013 Massachusetts became the first state in the U.S. municipal bond market to issue these so-called green bonds.  The offering was so successful that Massachusetts tripled the volume of green bonds offered in 2014, selling $350 million in bonds to individual and institutional investors this month. According to Massachusetts Treasury officials, the demand for green bonds far outpaced the supply.  The Treasury reportedly received $1 billion in buy orders for the $350 million bonds offered.

Massachusetts offered a 10-year bond, rated double-A-plus with a yield of 2.45%, to help fund, among other projects, the construction of a marine terminal in New Bedford.  The terminal will be designed to support the construction of offshore wind energy projects, including staging the first U.S. offshore wind farm in Nantucket Sound, the Cape Wind project.

As the Wall Street Journal recently reported, other states, including California, New York and the District of Columbia, have also issued green bonds to finance a wide-range of projects.  New York’s Energy Research and Development Authority has issued green bonds to finance hundreds of drinking water and wastewater projects across the state.  Just this week, California issued new debt that initially included $200 million of green bonds to finance projects that strengthen and protect the environment, such as clean water and public-transit infrastructure.  California quickly expanded the offering to $300 million in response to strong investor demand.

U.S. cities also are jumping in.  New York City released a report this week detailing how New York can become the nation’s first major city to finance projects through green bonds.  The projects envisioned by NYC’s Comptroller, Scott Stringer, would focus on cutting greenhouse gas emissions, green buildings, clean drinking water, and greener and more severe weather resilient infrastructure.

Private Industry

Private companies are also participating.  Abengoa SA, a Spanish energy company and global leader in the development of solar-thermal power plants, plans to issue the first European green bonds to raise $642 million to finance renewable energy, water, power transmission, energy efficiency, bioenergy, and waste-to-energy projects.  GDF Suez, a French utility company, recently issued green bonds for its renewable energy and energy efficiency projects.  Earlier this year, Toyota also became the first car maker to issue green bonds to fund electric vehicle and hybrid car loans.

To ensure transparency and industry standardization of where bond proceeds can be invested, several private financial institutions have signed on to the Green Bond Principles, a set of voluntary guidelines developed by Ceres and bond issuers such as the World Bank and the International Finance Corporation.  The Principles focus on four key areas — use of proceeds, project evaluation and selection, management of proceeds, and reporting.


Green bonds offer a major new opportunity for cash-strapped state and municipal governments looking for new finance flows to fund green assets, and for developers in search of financing for sustainable projects.  These bonds offer attractive investments both for financial and social benefits.