One year on from BAML's $500m green bond

Bank of America Merrill Lynch's (BAML) $500 million issue in November 2013 made it, arguably, the first issuer of a corporate use of proceeds green bond.

It is also one of the few commercial banks operating in the green bond space to have issued its own paper, even though there are believed to be more than 50 banks operating as underwriters.

The proceeds of the bond were allocated by June, Suzanne Buchta, BAML's managing director of debt capital markets who oversees green bonds in the Americas, told Environmental Finance.

A range of energy efficiency and renewables projects, from street lighting upgrades to solar panel installations, were funded by the bond (see box below for more information).

Buchta said the issue – which had been under discussion internally since 2011 and was part of a broader $50 billion environmental commitment to help address climate change, reduce demands on natural resources and advance lower-carbon economic solutions – had been "a very positive experience" for BAML.

She added that it was important that the bond had verified its use of proceeds and measured the impact of the use of proceeds.

At the end of 2013, PwC signed an 'attestation' of proceeds document to verify how the proceeds had been allocated at that time. It is due to sign off on the remainder of the bond at the end of 2014.

The impact of the bond was measured with the help of EY (formerly Ernst & Young), allowing BAML to publish metrics such as the amount of carbon emissions or water use avoided.

"EY had been working closely with our environmental group to put together a process for how to measure the impacts as part of the broader $50 billion capital commitment," explained Buchta. "So, it wasn't that much additional work. It was really just putting the allocations on the website and running the metrics."

She added that a white paper describing a methodology for impact reporting will be made available to other potential green bond issuers on request.

Although Buchta feels it is important that BAML set an example by reporting the use of proceeds, she also thinks a balance needs to be struck between the demands placed on issuers to demonstrate that bonds are green.

"We have been asking investors to be realistic in terms of the various additional requirements they require of green bonds (relative to regular bonds), without a willingness to give up yield," she said.

"We want other corporate issuers to come to the market," she said. "Setting the bar too high in terms of what kind of reporting is demanded can choke a market off before it has the chance to get going."

But she added that regular reporting of how proceeds are allocated should be "doable".

Buchta was unable to comment on whether BAML was planning on issuing another green bond.

Few commercial or financial institution group (FIG) banks so far have followed BAML down the road of issuing green bonds.

"Some potential FIG green bond issuers say it's because they don't have the assets on their books, but I find that hard to believe," she said. "You have to be committed to the space to drive the process." EF