Green Bonds Were Worth the Effort for the Midpeninsula Regional Open Space District: The Midpeninsula Regional Open Space District's recent bond refunding, its first green bond issue, became a template for how the district will approach future bond issues.

Author:Jaskulak, Stefan

The Midpeninsula Regional Open Space District (Midpen) approached its recent bond refunding as a unique opportunity to engage with its constituency and participate for the first time in the emerging green bond market--while capturing historically low interest rates to achieve maximum savings.

In 2014, more than two-thirds of Midpen voters approved up to $300 million in general obligation bonds. Since then, the Midpen's board of directors have made a priority of engaging the district's constituency, and Midpen's general manager and chief finance officer saw an opportunity in 2016 to combine public engagement with the bond issue via green bonds. The idea was to strategically engage district residents by enabling them to buy district bonds and to directly invest in and support the district's public mandate to acquire green open space preserves throughout the two suburban counties more commonly known as Silicon Valley.


Green bonds are tax-exempt bonds that fund projects with positive environmental and/or climate benefits. The majority of the green bonds issued are green "use of proceeds" or asset-linked bonds. The proceeds are earmarked for green projects but are backed by the issuer's entire balance sheet. The impressive growth of green bonds--nearly $100 billion were issued globally in 2016, more than double the number issued in 2015--has its roots overseas, with most of the transactions to date issued by development banks and European corporations. The growth of the U.S. green bond market has been similarly impressive, with U.S. municipals emerging as one of the fastest-growing segments of all green bond issuers, with nearly $22 billion of issuance since 2014.

The evolution of the green municipal market over the last few years has been marked by dramatic growth in both supply and demand. More than 100 issuers nationwide have pursued green or sustainability bonds (bonds where the proceeds will be exclusively applied to finance or refinance a combination of both green and social projects; see Exhibit 1), and many institutional investors now maintain dedicated socially responsible investing (SRI) portfolios, mandates, or analysts to evaluate and invest in green bonds and other SRI vehicles. As the market develops, the industry is refining and standardizing green criteria, guided by environmental, social, governance (ESG) criteria as established by the Climate Bonds Initiative, an international non-profit organization working to promote green solutions. The market is developing reporting standards required by investors and contemplating whether self-designation is appropriate, or if third-party opinions and certifications are required.

Exhibit 1: Green, Social, and Sustainability Bonds Green Bonds * Energy Efficiency in Buildings * Mass Transit * Water, wastewater and Waste Treatment * Renewable Energy * Resilency * Environmental...

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