Investors are hungrier than ever for green bonds, yet companies known for their sustainable prowess -- including Tesla Inc. -- are choosing to sit out, raising questions about just how valuable the label is.
U.S. non-financial companies have been among the slowest to embrace green bonds -- debt that’s designated to only finance eligible green projects -- issuing just $4.3 billion last year, a tiny fraction of an overall U.S. corporate bond market that sold $1.6 trillion. U.S. companies are expected to issue $5.2 billion in green bonds this year, meaning a green label for Tesla’s offering last week would have grown U.S. corporate issuance in 2017 by more than a third, according to Bloomberg New Energy Finance data.
Tesla, whose declared mission is to accelerate the world’s transition to sustainable energy, didn’t need the label as much as the nascent green bond market needed Tesla. Green bonds are a way for big companies to highlight their sustainable credentials, and also to help little-known renewable energy companies get the attention of institutional investors with like-minded interests. Tesla doesn’t fit in either of those buckets.
“Even if a company does know what a green bond is, and understands that they could issue one, they may not see any outright benefits in doing so, versus the costs and commitments associated with issuing a green bond,” Daniel Shurey, a green bonds analyst at BNEF, said in an email.
Companies that issue green bonds say they help attract a more diverse and long-term oriented group of investors than they would otherwise. They’re betting the label can improve liquidity, lead to more committed bondholders or at least raise their profile among green investors. Global assets linked to sustainable and responsible investing strategies hit $23 trillion at the end of 2015, according to the Global Sustainable Investment Alliance.
SolarCity Corp. was one of the most frequent issuers of green bonds before Tesla bought it in 2016. The company used the offerings as a way to raise low-cost money directly from environmentally friendly investors.
Palo Alto, California-based Tesla didn’t comment on why it chose not to designate the recent offering as green. But with the company led by Chief Executive Officer Elon Musk already a household name in zero-emission automobiles, it may not have needed to spend the extra money and time to snag the certification.
Costs, Commitments
Interest was high for Tesla’s debt sale regardless, with the B3/B- rated deal aimed at supporting production of its mass-market Model 3 electric car increased to $1.8 billion from the original $1.5 billion. The 5.3 percent coupon was a record low for a bond of its rating and maturity, according to data compiled by Bloomberg. The sale was managed by Goldman Sachs Group Inc., Morgan Stanley, Barclays Plc, Bank of America Corp., Citigroup Inc., Deutsche Bank AG and Royal Bank of Canada.
Costs to certify an offering as green can vary significantly. Sean Kidney, chief executive and co-founder of the Climate Bonds Initiative, estimates initial certification costs at between $18,000 and $41,000. Tesla choosing not to label its bond green was a “missed opportunity” for a fledgling sector hungry for another marquee name, he said.