2020/02 – Green Bond

In Asia and Europe, “environmental, social and governance” (ESG) investing is dominant.  If the PA wants access it will need to make its bond offerings more environmentally focused. Transport for London offers a model. 

imageImage Transport for London.

Remarks to the Port Authority of NY&NJ, 2/13/20

Today, I will argue that the Agency should employ “green bonds”1 to finance sustainable categories of transportation infrastructure. 

Transport for London

An example relevant to the Port Authority is Transport for London’s (TfL) 2015 bond offering.  TfL’s goals were to diversify its investor base and promote its pipeline of green assets.2 3    

The 10-year TfL notes were rated Aa2 by Moody’s, AA+ by S&P and AA by Fitch and yielded 2.125%.  The underwriters were Deutsche Bank and Bank of America/Merrill Lynch with whom it developed the framework.  The engineering firm DNV GL credentialed the offering’s “green bona fides” and advised TfL on anticipating and responding to investor concerns.4

The £400 million (US $600 million) offering was oversubscribed by half.  Investors came from continental Europe (18%), Asia (15%) and the Middle East (6%).  The remaining demand came from UK-based investment funds (61%).5  

Proceeds were deposited to TfL’s general cash pool and tracked to demonstrate that they were allocated to eligible projects: rail and station upgrades, purchase of hybrid buses and expansion of its already extensive network of bikeways.6


– Issuing green bonds would allow the PA to tap into a rapidly growing and diversified global market – $257.7 billion in 2019, up 51% from 2018.7 8  

In Asia and Europe, where demand for taxable municipal bonds is rapidly growing, “environmental, social and governance” (ESG)9 investing is dominant. If the Port Authority wants to access these markets, it will need to make its offerings more environmentally focused.

climate bond 2019 highlightsSource Climate Bonds Initiative.

– A portfolio of green projects would help protect the Agency against a credit downgrade as rating agencies increasingly factor ESG into overall assessments.  By identifying a portion of its portfolio as green, and committing to increase it over time, the Agency creates a metric to track its transition.10 11  

– As with sovereign debt,12 an issuer’s fiscal health is tied to that of its host.  Reducing NY-NJ costs of achieving GHG reduction targets will in turn benefit the Agency.  Similarly, enhancing regional resilience against transport outage will insulate the Agency’s own revenue stream from disruption.13 14  

– Studies show that issuing green bonds would not result in an immediate reduction in borrowing costs.15  Such instruments, however, would be held as “riskless” once movement towards a low-carbon economy triggers a repricing of GHG-emitting assets.16 17

– Following the timeline embedded in the Paris Climate Agreement, ESG concerns will become paramount in public opinion, legislation and to institutional investors over the coming years.18  

As BlackRock CEO Larry Fink recently warned:

“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself—in the near future, and sooner than most anticipate.”19 20  

Neile Weissman, 2020

9847_what_ipr_v2_182446Source Principles for Responsible Investment.

Also see 80 by 50Two Degree WorldAgencyCORSIA and Eco-Tax


1 “Climate bonds (aka green bonds) are fixed-income financial instruments linked in some way to climate change solutions.” “Climate Bond,” Wikipedia, https://tinyurl.com/qqp55nx

2 “Framework for a TfL Green Bond,” Transport for London, tinyurl.com/1f1660c6

3 “It became clear that TfL had plenty of assets that would be considered as green by the market under the ‘low-carbon transport’ theme.” “Case Study: Transport for London (TfL) Green Bond,” Climate Bonds Initiative, https://tinyurl.com/utxv8vd

4 “Transport for London Green Bond, DNV GL Second Party Opinion,”, TfL.gov.uk, 4/2/15, https://tinyurl.com/s79pfag

5 The GBP-USD exchange rate for £400m on 4/17/15 was 1.4986 or $599m, poundsterlinglive.com, https://tinyurl.com/u6xc7f8

6 “The SCA presents datasets, forecasts and models that will get more people walking and using public transport.”Strategic Cycling Analysis,” Transport for London, June 2017, https://tinyurl.com/y4uzep4a

7 “Green Bond Highlights 2019,” Climate Bonds Initiative, https://tinyurl.com/ur6dy6r

8 “New York State Comptroller Thomas P. DiNapoli today announced a $3 billion increase to the New York State Common Retirement Fund’s Sustainable Investment Program, raising its total commitment to $10 billion.” Ceres.org, 12/7/18, https://tinyurl.com/yawerra3

9 “Environmental, social and corporate governance,” Wikipedia, https://tinyurl.com/y7jsqrz4

10 “The transportation sector is primed for more green bond issues, as institutional investors are increasingly attracted to the long tenors, large size, and investment-grade ratings. Green bonds for railways are likely to grow, especially in urban areas, as reduction of CO2 emissions in densely populated regions is a high priority for local stakeholders.” “Why the Transportation Sector is on a Fast Track to Get Greener,” S&P Global Ratings, 5/10/19, https://tinyurl.com/r8er47n

11 “Companies should consider disclosing their green bond ratio in order to communicate their overall low carbon transition plan beyond the individual bond issue.” “Technical Expert Group on Sustainable Finance: Report on Climate-Related Disclosures”, European Commission, 1/10/19, https://tinyurl.com/y946yszv

12 “The highest credit rating that a bond issued internationally may have is limited by the credit rating of the issuance country.” “New markets for green bonds, A guide to understanding the building blocks and enablers of a green bond market”, p. 6, Climate & Development Knowledge Network, July 2017, https://tinyurl.com/raosq5m

13 “(Partial shutdown of the Hudson Rail Tunnels) would cost the national economy $16 billion over four years – more than half from the time lost by workers from longer daily commutes.” “A Preventable Crisis The Economic and Human Costs of a Hudson River Rail Tunnel Shutdown,” p.4, Regional Plan Association, February 2019, https://tinyurl.com/y3d87rad

14 “New York and New Jersey would lose $4.5 billion in tax revenue.”, ibid, P.5.

15  Maria Jua Bachelet, Leonardo Becchetti and Stefano Manfredonia, “The Green Bonds Premium Puzzle: The Role of Issuer Characteristics and Third-Party Verification,” p. 2, mdpi.com, https://tinyurl.com/ur6eur8

16 “Green bonds could eventually pay lower yields because they could be viewed as ‘riskless’ in one category. That would lower borrowing costs, driving more corporations to adopt green policies. ‘Currently, green bonds are largely a carve-out.’ Growing demand will give green bonds preferential treatment and corporations get to hold themselves out as being greener.” “Green Bond Market Just Getting Started,” Investment News, 10/5/19, https://tinyurl.com/s3z5zg

17 “Practitioners may see bond spreads tighten if ESG risk isn’t priced in.” “ESG Integration in the Americas: Markets, Practices and Data,” p. 82, CFA Institute, 2018, https://tinyurl.com/teuudyp

18 “What is the Inevitable Policy Response?” Principles for Responsible Investment, 9/19, https://tinyurl.com/vt29tph

19 “The Microsoft announcement was preceded by a more surprising one from BlackRock, the world’s largest asset manager, with $7 trillion under its management, that it would begin to step away from certain carbon investments.” “When Will Companies Finally Step Up to Fight Climate Change?” New York Times, 1/23/20, https://tinyurl.com/wg8be6n

20 “A Fundamental Reshaping of Finance,” BlackRock, January 2020, https://tinyurl.com/ycluszll

Neile Weissman, 2020