ESG – Green Bonds and Green Financing Continues Torrid Pace of Uptake – $2.36 Trillion Anticipated by 2023

I had the pleasure of hosting Emily Paciolla (Federal Realty), Dan Winters (GRESB), Ethan Gilbert (Prologis) and Ben Myers (Boston Properties) this past week on our monthly ESG podcast.

Wow, what a fascinating conversation focusing on what each of their companies (leaders in their own industry segments of industrial, office and retail as well global benchmarking on the GRESB front) are doing and how they are utilizing green bonds as a part of their strategies for continuing to invest in sustainable solutions for their companies and their clients (i.e., their tenants).

The panelists represent over 1 Billion Square Feet of office, industrial and retail space in the US and abroad and are market movers in their respective sectors.

We heard on the podcast that interest in GRESB, the Global Real Estate Sustainability Benchmark that is used to rate companies (i.e., aggregation of assets not just single buildings but portfolios), has also continued to have an incredible uptake of clientele companies joining GRESB and submitting to their voluntary benchmarking and scoring.  In 2020, over 1,200 international companies submitted to GRESB and, with yesterday’s filing deadline for 2021, it is likely that over 1,600 companies will be submitting in 2021.  Each of these companies have multiple assets and, as such, represent a growing footprint of square footage willing and interested in participating in measurement, verification and benchmarking.

The panelists also discussed that within their companies, they are voluntarily reporting their results publicly and are having these results verified by external reporting.  These ESG and sustainability reports have been published and other public companies are following their lead and also publishing their results (e.g., over 85% of Fortune 500 companies publish their results). 

All panelists have issued green bonds and anticipate likely future issuances.  Both Boston Properties and Prologis have issued over $1B of green bonds each and continue to expand the depth and breadth of their investments.  Federal Realty has also used their green bond proceeds to broaden and deepen their LEED certifications  and other sustainability programs within the portfolio of over 110 properties in the US.  Green bond dollars have been used to  further other ESG and sustainability initiatives and help expand building certifications (LEED and BREAM as well as WELL and Fitwel) within each of their respective portfolios and enable initiatives to be pushed further and faster.

Of particular interest is not only the scale that they are issuing bonds but also that these bonds are being priced with a discount of 5-15 basis points cheaper than non green bonds – meaning, it is cheaper to borrow this type of money for green usage and investment than for non green usage.  Over a few billion dollars, these basis points may sound small but these savings are NOT…think millions of dollars of savings each year and over the life of the bond.  Real money being invested in green investments at a cheaper rate!

During 2021, ESG efforts at these companies will be focusing on supply chain sustainability metrics, use of materials, embodied carbon, renewables including on-site solar energy generations, energy efficiency, the Task Force on Climate Disclosure, Scope 3 emissions and diversity, equity and inclusion.

While not all tenants everywhere are asking about green features in their buildings, more and more are interested in them in the panelists’ views and to address this interest, these companies continue to offer more and more green attributes and features within their respective portfolios.  Moreover, with return to work post pandemic being somewhat imminent, the panelists also saw the role of the Chief Sustainability Officer being expanded in most cases to include some level of involvement or oversight with respect to health and safety and return to work – think elevator policy, green cleaning and chemicals, plexiglass and social distancing, air conditioning and fresh air intake and MERV filtering of air (13 or higher to trap 99% of air borne particulate matter), etc.

Our panelists have also tied their revolving credit facility metrics on rate to various ESG metrics and are also tying executive compensation to various ESG and sustainability metrics.  As we have reported previously, as more public companies tie compensation to reaching various ESG goals, the uptake will continue to build until this approach is not viewed as novel but, rather, common place, as others will likely begin to follow this lead or be viewed by investors as not paying attention or caring.

We also heard the Roger Platt-ism of a “self-licking ice cream cone” being used to describe the interplay of measuring, verification and outcome in the green space across various segments (longer explanation need than we have room for but ring me and we can discuss) – as well as describing the ESG space as being a lot of Plan, Do, Check and Act!

Triple Bottom Line – with over 23 countries represented and a Strategic Framework being created and issued by the World Bank in 2008, green bond issuances started slow and steady but have seen a massive uptake in interest and investment in the last 6 years.  The bonds and financings have been used to support and encourage environmentally friendly projects in the US and internationally (including required covenants to maintain these projects on a go forward basis).  In 2020 over $269 Billion in green bonds were issued, noting that the pandemic did little to dampen enthusiasm for this green type of investment vehicle.  In Q-1 of 2021 we saw over $106.86 Billion of green bond issuances, a bit of a harbinger of a super green bond year.  All in all there have been approximately $1 Trillion of green bond issuances cumulatively with an annual year of year uptake of 60% growth since 2015.  Current estimates have cumulative totals of green bond issuances at over $2.36 Trillion dollars by the end of 2023

As such, this author’s view is that green bonds as a financing source is NOT a passing fad, rather they are a viable source of debt capital and continuing to build in interest and issuances both nationally and internationally and will continue to do so.

Duane Morris has an active ESG and Sustainability Team to help organizations and individuals plan, respond to, and execute on Sustainability and ESG planning and initiatives within their own space. We would be happy to discussion your proposed project with you. For more information, or if you have any questions about this post, please contact Brad A. Molotsky, Nanette Heide, Darrick Mix, Jolie-Anne S. Ansley, David Amerikaner, Vijay Bange, Stephen Nichol, or the attorney in the firm with whom you are regularly in contact.

P.S. Our panelists divulged that their favorite podcasts these days include “How things Work”, “The Hidden Brain”, “How to Save a Planet”, “The Energy Gang” and “Big Switch” – check it out!  Also, if you are looking for a super children’s book to help explain climate change to your kids, check out “Earth’s Climate Heroes” – A+



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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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