Schools Rushing To Join the ESG Bond Market

Schools Rushing To Join the ESG Bond Market

Universities in the United States are tapping into the investment market for funds from investors keen to signal their own interest in supporting environmental causes.

Last year, schools issued almost four times as much debt branded with green, sustainability or social labels as the year before. The schools are embarking on programs that will reduce their carbon footprint, either through innovative research and testing programs or by building new campus buildings that adhere to the latest green standards.

Sales of ESG bonds (environmental, social and governance) are an emerging trend where states, cities and public institutions raise money to finance capital projects. Bloomberg reported that in 2021, municipal borrowers sold more than $50 billion of green-, social- or sustainability-labeled debt, far and away a record. Colleges and universities accounted for $1.7 billion of that amount, a growth reflecting the broader market. 

By adopting the green label, colleges are able to show their aspirations: to use social, financial, and educational capital to make the world a better place and improve their campuses, especially as infrastructure ages.

Ohio State University last September borrowed US$600 million for a new inpatient hospital in Columbus that promotes energy efficiency and conserves water. 

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The university will consider more green labels to lower the cost of future bonds, said Kurt Kauffman, assistant treasurer at Ohio State.

“We think that benefit will grow over time as that ESG investor base matures,” Kauffman said. “It may be a small benefit now but bigger in the future.”

It’s difficult for investors to get the full picture of what exactly is a green bond because anyone can choose to self-label, said Alexa Gordon, head of ESG for the municipal fixed-income group at Goldman Sachs Asset Management.

“Until there’s consistency, it’s hard for issuers to have that incentive,” Gordon said.

Oberlin College, a liberal arts school about 56 kilometers southwest of Cleveland, essentially conducted its own price experiment in July when it sold debt with a climate-bond certification to convert its energy system to geothermal.

The school priced two bonds on the same day, with the same maturity and call structure. The $80.6 million green bond priced with a yield 90 basis points above the benchmark. The $30.4 million series, to refinance debt, priced with a spread of 95 basis points. Vice President for Finance Rebecca Vazquez-Skillings said the climate label gave the green bond a better price.

Stanford University sold $300 million of climate and sustainability bonds for projects that support the school’s emission-reduction goals.

Treasurer Karen Kearney said it’s unclear whether the green label meant a lower borrowing cost because Stanford’s debt is already in high demand from buyers eager to invest in the AAA-rated school. Still, she said the April sale drew bids from new ESG-focused investors who hadn’t bought the school’s debt before.

Oberlin’s multi-year energy conversion will further its goal to become carbon neutral by 2025.

This is an abridged version of Bloomberg’s article which appears here.