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.”