The Power of Green Bonds: A Year of Innovative Issuances
Goldman Sachs 2018 Sustainability Report 23
THE POWER OF GREEN BONDS
Goldman Sachs has been at the forefront of the design and issuance of innovative green, social and sustainable bonds, raising financing to benefit everything from critical infrastructure projects to initiatives that fuel commercial activity in local economies. These are among the most notable issuances of 2018:
Long-Standing Partnership on Clean Rivers: Goldman Sachs has been a long-time advisor and financier to the District of Columbia Water and Sewer Authority (DC Water). In 2014, the firm helped DC Water underwrite its inaugural green bond with the first-ever 100-year maturity. In subsequent years, Goldman Sachs’ Urban Investment Group worked with DC Water and the Calvert Foundation to structure and invest in a first-of-its-kind environmental impact bond. In DC Water’s latest green financing in 2018, the firm helped raise a $300 million bond that included $100 million in green bonds. Proceeds from the green bonds will finance a portion of the $2.7 billion Clean Rivers Project, which is designed to significantly reduce combined sewer overflows into District waterways, helping to improve water quality and provide flood mitigation and waterway restoration.
Green High-Yield Bonds: Goldman Sachs was joint global coordinator, bookrunner and structuring advisor in a €550 million green bond for GetLink, operator of Eurotunnel and Europort. The issuance, one of a few high-yield green bonds, will finance a range of green assets, primary among them ElecLink, a 1,000-megawatt direct-current interconnector between France and the United Kingdom capable of carrying enough electricity to power 2 million homes (completion subject to regulatory approval). The project increases power flow between the two countries by 50 percent, and enables France, with its relatively low carbon infrastructure, to send more power to the UK, which is more reliant on fossil fuels. Construction began in 2017 and is expected to last three years, with service scheduled to begin by early 2020.
First-of-Its-Kind Renewable Natural Gas Bond: The firm structured a $61 million green issuance for Equilibrium Capital, a global manager of sustainable real assets, to build a pioneering renewable natural gas (RNG) project in Arizona. The issuance was the first RNG financing in the capital markets to finance a refinery capable of turning dairy waste, one of the largest sources of methane emissions, into vehicle fuel. RNG is fully interchangeable with conventional natural gas, whether compressed or in liquefied form. To serve as vehicle fuel, a likely application, the raw gas is further processed to standard pipeline purity, removing water, carbon dioxide, hydrogen sulfide and other trace elements. Environmental benefits of the technology are considerable: from a lifecycle perspective, RNG has very low or even negative carbon intensity given that the carbon content of RNG is sourced from dairy waste that would otherwise decompose naturally and be released into the atmosphere.
Greening Telecommunications: In early 2019, the firm helped Verizon issue an inaugural green bond that was the first of its kind for a US telecom company and tied for the third-largest US corporate green bond issuance ever. The billion-dollar transaction will fund new and ongoing projects that help to drive Verizon’s sustainability initiatives, including investment in renewable energy, energy efficiency and waste reduction projects. Verizon has publicly committed to sourcing the equivalent of half of its annual electric power from renewables by 2025.
A YEAR OF INNOVATIVE ISSUANCES
Green, social and sustainability bonds underwritten since 2014
$35B FROM CLEAN ENERGY TO RESILIENT INFRASTRUCTURE TO CORPORATE GREEN INITIATIVES, INNOVATIVE FINANCING IS INSTRUMENTAL IN THE DRIVE FOR SUSTAINABILITY. ADVANCING ENVIRONMENTAL PROGRESS
BUILDING A THRIVING US GREEN BOND MARKET
While the market for green bonds is growing worldwide, the US market has room for expansion, and closing that gap was the subject of a groundbreaking report in 2018, with Goldman Sachs Asset Management as a co-sponsor and lead participant. Published by the Milken Institute, with support from the California State Treasurer’s Office, the report, Growing the US Green Bond Market, takes the discussion of green bonds to a new level by focusing not only on the challenges these issuances can help governments and companies address, but on innovative structures and applications that can accelerate the use of green bonds in America.
The report notes that updating the nation’s infrastructure to mitigate climate change may have a price tag as high as $4 trillion — well out of the reach of cash-strapped governments. Seen in this light, green bonds are an important tool, attractive to investors seeking long-term yields, potential tax advantages and the ability to add sustainability to their portfolios.
As a long-time thought leader and innovator in the green bond space, the firm provided research to buttress concrete recommendations for creating an efficient and scalable green bond market — one that will make it easier for governments and companies to carry out much-needed projects, from improving water and wastewater facilities, to increasing charging capacity for electric vehicles, to enhancing infrastructure to better withstand climate caused stresses.