July 2018: Can US municipals scale up green bond issuance? Likely, “yes”

The Climate Bonds Initiative conducted a scoping exercise to identify potential US Muni green bond issuers by considering the upcoming bond maturities of climate-aligned municipal entities in the water, waste, transport, renewable energy and land use sectors, i.e. key sectors under the Climate Bonds Taxonomy.

We acknowledge that there are many entities issuing bonds for climate-aligned projects but for the purpose of this scoping exercise, we honed in on specialised agencies with more than 95% of their revenue derived from climate solutions (pure-plays).

The analysis reveals USD250bn of outstanding bonds from specialised US municipal issuers, which are climate-aligned, but not labelled ‘green’. Refinancing needs from these issuers offers an opportunity to label bonds and consolidate US municipals’ position in the green bond market. USD14bn has already been issued by climate-aligned US Muni entities in green bond format.


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US Muni bond issuance slowed in Q1-Q2 2018

Green bond issuers from 31 US states have issued to date. The top 3 states account for 64% of US Muni green bond issuance: New York ranks first (USD7.2bn issued as of end Q2 2018), followed closely by California (USD6.9bn). The third largest is the pioneer: Commonwealth of Massachusetts (USD2.9bn).

However, US Muni green bond issuance dropped in H1 2018. This is in line with a wider trend in US Muni issuance. The passing of the Tax Cuts and Jobs Acts of 2017 by Congress in December 2017 resulted in major alteration to US tax law, and that has impacted the issuance of refunding bonds in particular, according to SIFMA monthly data.


Green bond growth opportunities

1,436 climate-aligned issuers were identified with USD264bn in bonds outstanding (these include USD14bn in green bonds outstanding already issued by 23 pure-plays). Over half the volume (54%) is attributable to 50 pure-plays with USD1-10bn of outstanding bonds.

Issuers from the transport and water sectors account for most of the related bonds. The two issuers with outstanding debt exceeding USD10bn are also from these sectors and account for a quarter of volume. The smaller issuers are primarily from the water industry.


Download the full briefing here.