Clean Tech & Energy

Sustainable Bonds from the MBTA: A Sign of the Times?

green bonds
May 22, 2018

In September 2017, the Massachusetts Bay Transportation Authority (MBTA) issued $370 million in sustainable bonds to fund capital projects with a social or environmental focus. The MBTA, which operates mass transit in the Greater Boston area, said the sale represents the first tax-exempt, sustainable bonds issued in the US.

The sale will fund a range of MBTA projects promoting energy and water savings, greenhouse gas reductions, increased recycling, improved materials management, air pollution control, and community well-being.

There was strong demand for the bonds, with nine banks submitting bids. “This shows that the market will reward institutions that do good in the world,” said Paul Brandley, MBTA CFO and treasurer.

The MBTA’s sale included $271 million in shorter-term Bond Anticipation Notes for a train control project that uses GPS technology to improve safety for crew and passengers; and $99 million in longer-term issuance to support a range of 74 sustainability projects that are all under way, Brandley said.

When setting up the program, the MBTA consulted with sustainability researchers at MIT and Harvard, as well as impact investors. In the end, Citibank won the bid and in turn sold the bonds to a range of high-net-worth investors and family offices.

The 74 projects include repairing the Harvard Square busway to mitigate pollution; modernizing Government Center station to make it handicapped accessible and more energy efficient; and improving the Hingham Ferry to protect the environment and improve accessibility.

A total of $83.2 billion in sustainable bonds were issued worldwide through the first three quarters of 2017, of which about 11% were tax-exempt, according to a report from the Climate Bonds Initiative. Starbucks was the only other US issuer of sustainability bonds in 2017.

Brandley believes the MBTA sale will encourage other agencies to look to sustainability bonds to fund green or social projects. “More issuers are coming around and realizing that if they have a positive impact on society and the environment, and they’re willing to share on the impact to do the work, that it will translate into competitive pricing,” he said.

Investors have several reasons to consider if municipal bonds make sense for their investing strategy. Many municipal bonds are exempt from federal and, in some cases, state income taxes. Sustainable municipal bonds may also help investors meet their environmental, social, and governance (ESG) goals.

Although there has been some anxiety among investors that negative signals from the federal government could hurt sustainability projects, Brandley remains optimistic. “No matter what happens in Washington, we will be able to raise money at competitive rates,” Brandley said. “I’m hopeful we will see more issuers.”

When setting up the program, the MBTA consulted with sustainability researchers at MIT and Harvard as well as impact investors.
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