Morgan Stanley is leaping onto the green bond bandwagon, announcing last week that it has closed on the issuance of its inaugural $500 million green bond to fund clean energy and energy efficiency projects.

Funds connected with the offering will be used on projects including the construction of four Texas wind farms and the installation of energy-efficient lighting to Morgan Stanley’s New York headquarters.

“Sustainable Investing is about trying to maximize capital to build a more sustainable future,” Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing, says. “We believe that the green bond market embodies that cause by ensuring an appropriate rate of return and funding projects that fulfill a sustainable and green outcome."

Choi said the issuance of the 2.20 percent senior notes, due in 2018, is part of the company’s larger strategy of offering market-based solutions to environmental issues.

“Morgan Stanley has been very committed to the growth of the green bond market,” says Choi. “We have been excited to be one of the leaders in the field and to be involved with a lot of the firsts.”

In 2013, Morgan Stanley established the Institute for Sustainable Investing to bring investment instruments addressing environmental challenges to scale.

With the issuance, Morgan Stanley has also attempted to clearly define green bonds, until now a nebulous classification, by adopting a "green bond framework" aligned with principles established by the International Capital Market Association.

The framework establishes a transparent project selection process and mandates that proceeds from the sale of the notes are deposited into a segregated account for tracking disbursements.

“Really, in setting up the framework we were focused on applying those best practices that investors had said that they want,” Choi says. “Since we are committed to the growth of the green bond market, we believe that quality in these products is best ensured by rigor— a clear process for the use and management of proceeds, regular reporting on the bond and an independent review of the issuance. We want to exemplify those best practices.”

The framework and the issue were reviewed and certified by Oslo, Norway-based DNV GL, an independent certification expert in renewables and energy efficiency.

In 2014, Morgan Stanley was a founding signatory of ICMA’s Green Bond Principles, voluntary guidelines aimed at developing the market, alongside Goldman Sachs and J.P. Morgan Chase.

The principles define green bonds projects as those dealing with transportation efficiency, clean energy, energy efficiency, agriculture and forestry, waste and pollution controls, clean water, brownfields redevelopment and remediation, and electric and hybrid vehicle development.

Choi says Morgan Stanley believes it can have the biggest impact for the best return by funding renewable energy projects.

“I think there’s a wide variety of interesting and worthwhile projects that green bonds can be allocated to,” Choi says. “In our case we wanted to focus on things that were tightly tied to solving the energy challenges that we had before us. These are projects that we will be able to deploy quickly.”

New York-based Davis, Polk & Wardwell LLP is advising the offering.

The market in green bonds has blossomed from just $1 billion in 2012 to over $30 billion last year. So far this year, more than $16 billion of green bonds have been sold, after more than $32.6 billion sold in 2014. The market is expected to grow by more than 50 percent by the end of 2015, according to Standard & Poors, boosted by the triple- and double-A ratings most green bonds receive.

In May, Bank of America announced it’s second green bond issue, raising $600 million for renewable energy and efficiency projects, while earlier in June, the World Bank announced its 100^th green bond.

“We’ve seen dramatic growth, there’s strong momentum in the sustainable investing field,” Choi says. “In November 2014 we surveyed investors, and 71 percent of respondents said they are interested in sustainable investing and think that sustainable investments will grow. Interestngly, 72 percent believe that companies with good practices do better. The trend was more rampant among women and millennials.”

Environmentally and socially conscious investors are naturally attracted to sustainable investments, but investors focused on returns may be concerned about the returns — but recent studies have found those concerns are ungrounded, Choi says.

“One drawback our studies found was that 54 percent of investors thought that focusing on sustainable investing might negatively impact their returns,” Choi says. “But we did a different study where we examined 10,000 mutual funds and looked at the seven-year performance period, and we found that sustainable funds more often than not performed as well or slightly better than traditional funds from a returns perspective. From a risk perspective, their volatility was the same or slightly lower — so there are indications that sustainable investing does not involve financial compromise.”

According to a recent report by the Climate Bonds Initiative, over $500 billion worth of bonds are now linked to climate-change solutions compared with $346 billion a year ago — a small but growing portion of the $91 trillion worldwide bond market.

While this is Morgan Stanley’s first foray into issuing green bonds, the company has a history of supporting this form of sustainable investing. Before Tuesday’s announcement, the firm was already among the leading managers in the green bond market, facilitating over $61 billion in capital for clean tech and renewable energy businesses.