Association for Public Policy Analysis & Management

Introduction

Environmental sustainability forms a major focus of policy at the local, national, and supranational levels of government. Climate change, energy efficiency, and water management continue to gain attention in the policy discourse reshape the ways public managers design, implement, and monitor projects. The estimated costs of assets vulnerable to climate change risks run into trillions. Several new mechanisms of financing efforts towards sustainability and climate change mitigation and adaptation efforts have been proposed. At the same time, some old financing mechanisms have been repackaged to serve the market as well. Green bonds are a combination of the two categories. As of December 2018 the global green bond market stands at over USD 200 billion. At the sub-national level, states, cities, school districts, and even universities have leveraged green municipal bonds as a way of raising finances for funding infrastructure spending across the United States.

Research in this area lies at the intersection of climate finance and sub-national finance. Studies examine the different definitions and uses of green bonds, difference between quantifiable characteristics of green and non-green bonds, and the costs of issuing green bonds. As regards the difference on returns to investors, evidence so far, has been mixed. Since this is a new and evolving space, there is limited research on the qualitative characteristics of climate and green municipal bonds. In particular, there is little information how do agencies distinguish between their green and non-green issuances and whether project definitions differ based on this distinction.

Proposed methodology

This exploratory study uses text analysis to examine the architecture of climate aligned and non-climate aligned municipal bonds. Within the universe of climate aligned bonds, it also investigates the difference between certified and non-certified bonds. The paper aims to create a framework for understanding how public agencies market green bonds and whether the official statements use the “green” characteristics of bonds in laying out their characteristics. The data for this paper will be drawn from the official statements available at the EMMA website of the Municipal Securities Rule Making Board. Following this, an analysis would be done of these official statements using text analysis software. Drawing on this, the paper builds a framework highlighting the ways in which sub-national governments market their green bonds and how this differs from non-green bonds.

The findings of this paper will shine light on the role of sub-national financing in supporting sustainability initiatives. As the states and city level governments increasingly shoulder responsibility for climate change mitigation and adaptation efforts, alternative tools for financing these efforts are needed. Therefore the proposed framework would be the first step in further research that might look at understanding how the “green” characteristics of bonds affect investments in the bonds or the borrowing costs of climate aligned bonds in comparison to non climate aligned bonds.