12 May Go for the Green
By Mary Grauerholz
Bank of America offers first corporate green bond in U.S.
The first corporate “green” bond in the country is doing more than helping to create a more sustainable future—it is pleasing its investors. Bank of America Corporation introduced the bond based on a public financial commitment to the environment, and to answer the calls of investors who wanted more socially conscious investment choices. The resulting projects—think ecological construction, geothermal energy, lighting retrofits in public buildings, and more—are pleasing investors with a vision of a more sustainable world and good financial returns.
Bank of America introduced the three-year fixed-rate bond, with $500 million in aggregate principal, in fall 2013. It was years in the making, says Suzanne Buchta, Global Co-head of Green Debt Capital Markets at Bank of America Merrill Lynch, from the company’s Manhattan office. It was a natural evolution for the institution, she says, springing from a long-term financial commitment to build a portfolio of socially conscious investments.
The bond will help finance certain assets that are included in a 10-year $50 billion green business initiative that Bank of America rolled out in 2012 to address climate change, reduce demands on natural resources, and advance lower-carbon economic solutions.
The first conversation about the bond was in 2011, Buchta says, when her team was working on green bonds for the World Bank. As she says, “We got to thinking about one for our own bank.” Many other institutions had had the same idea, but as Buchta says, “For us, it was sitting down and doing the work that was necessary.” Several months of work followed, from determining which projects to invest in to targeting the investor base.
The bond sharpens Bank of America’s profile as a leader in capital markets, Buchta says. Among the investors are TIAA-CREF, the California State Teachers’ Retirement System, and BlackRock. “There was also strong demand, so we were able to attract good financing levels,” she says. “It was demand-driven.” Another goal was to reach new investors, and that has been a big success; approximately 10 percent of total investors are newcomers to the institution’s market.
Buchta has long nurtured an interest in environmental construction and was accredited as a LEED Green Associate several years ago. Her Manhattan office building, in fact, was the first LEED Platinum Core and Shell building in New York City. The timing of the introduction of the green bond was perfect for her, she says. “I was getting very passionate about environmental initiatives.”
The funds will be used to finance energy-efficient projects that feature renewable energy in solar, wind, and geothermal. The projects stretch from coast to coast, ranging from energy-saving lighting retrofits in government buildings, to heating and cooling in public housing and new insulation in public schools.
One $16 million project in California is providing funds to finance the conversion of 30,000 high-pressure sodium cobra head streetlights to Light-Emitting-Diode (LED) streetlights in Oakland, one of the first municipalities in the country to implement big-scale street lighting LED conversion. The project is expected to bring a bundle of benefits, including energy savings, greater functionality, more jobs, and even less crime, brought about by the benefits of better visibility on city streets.
The environmental impact of the green bond is obvious through this California project. Clearly, it is also a good business decision. The bond was over-subscribed, with potential investors outweighing supply, says Jerry Dubrowski, a spokesperson in the company’s Charlotte, N.C., office. “We had a pretty broad base of investors who wanted to participate in the offering,” he says. “Generally speaking, it appears there is more interest in environmentally friendly [investments] today. This bond is supportive of that.”
The bond is part of a larger commitment that Bank of America has to the environment, the 10-year business initiative. “When we announced that we would invest $50 billion in climate change and lower carbon economic solutions, we basically put a flag in the ground,” Dubrowski says. “This $500 million green bond offering is complementary to that commitment.”
Philosophically, the green bond has recharged Bank of America Corporation staff. “It was something new to think about,” Buchta says. “It’s a project that people are proud to be a part of.”
The resulting projects of the green bond are pleasing investors with its vision of a more sustainable world and good financial returns.
Total costs for materials and labor:
$15 million, with funding for the conversion project provided by the energy savings
Number of installation crews: 2
Total number of cobra head streetlights in Oakland: 30,333
Total number converted as of March 14, 2014: 28,207 (93 percent)
Manufacturer: General Electric
Where LED lights are manufactured:
Distributor: Graybar Inc.
Contractor: Amland Corp.
Sub-Contractor: Aeko Consulting