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 100th 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.