California should continue to champion green bonds to fund the build-out of low-carbon infrastructure, despite the US having "abdicated its role as a global leader" on climate change, the state's Treasurer argued.
In a tub-thumping keynote address at the state's inaugural green bond symposium, John Chiang slammed President Donald Trump's decision to pull the US out of the Paris climate agreement while "doubling down on energy policies developed for a bygone century".
"Within hours of his inauguration, Trump's team began marching the nation backward into a policy of retrenchment that ensures our continued dependence on fossil fuels," he said.
Chiang stressed the importance of combatting climate change, and highlighted the potential for green bonds to help fund the $93 trillion of low-carbon infrastructure needed to meet the goals of the Paris climate agreement, of which $8 trillion is needed in the US.
"I believe the bond markets – and specifically green bonds – are an essential tool in raising the capital necessary to finance our transition to a low-carbon economy," said Chiang.
The two-day symposium in Santa Monica was a partnership between the State Treasurers' Department, the Milken Institute think-tank, and Environmental Finance.
The first day was a round-table of key market players and thought leaders to brainstorm how to scale up the California green bond market, while the second day was a conference attended by more than 200 delegates.
The discussions will feed into a report to be compiled by the Milken Institute in coming weeks as to what the State Treasurer's department can do to support the market.
The urgency of the need to combat climate change was outlined in a keynote address from Ram Ramanathan, a professor of atmospheric and climate sciences at the Scripps Institution of Oceanography at the University of California.
He said that science suggested that there is currently a 5% chance of catastrophic levels of climate change, and asked delegates if they would get on a plane knowing that there was a one-in-20 chance it would crash. He called on delegates to increase the size of the green bond market by "a factor of 10".
Overall, the delegates were bullish about the market. A poll found that 29% expected issuances of between $175 billion and $200 billion in 2018, and a further 28% expected issues of between $200 billion and $225 billion.
Some 72% of the audience wanted some form of subsidy or incentive to stimulate issuance within the state, which was the first to reach $5 billion in municipal green bond issuances, in November 2017.
The conference heard from numerous issuers and buyers of green bonds. Oakland, California-based rooftop solar firm Solar Mosaic issued two green asset-backed securities in 2017, with another issuance planned in the second quarter of 2018.
"[Obtaining a green bond designation] was a very painless step in the [securitisation] process, to get us access to an incremental investor base we consider very important for our ability to expand," said Steve Controulis, chief financial officer. "We have 38 investors in our two securities, which is excellent distribution for a company at our stage, and the green bond designation did help."
Tenaska is a privately held energy company that issued a green bond in 2017 to refinance a solar project. Its chief financial officer, Gregory Van Dyke, agreed that issuing a green bond is "a pretty painless and fairly inexpensive process".
He said it "opened doors to new investors" and "ultimately translates to the lowest cost of cap. It's hard to prove, but we wouldn't have done it if we didn't believe it to be true".
Stephen Liberatore, lead portfolio manager for responsible investment fixed income at TIAA Investments, warned that if investors were expected to pay up for green bonds, it would be unlikely that the market would scale up to the trillions of dollars a year.
"We will not condone subsidised pricing," he said, adding that there are numerous benefits to issuing a green bond such as marketing and investor diversification, and he does not believe the reporting requirements are material. He said that sometimes issuers think investors want more information than they actually do, but normally they should have figures such as the amount of electricity generated by a solar plant.
"If they do not have that info, I don't want to fund them because they are not doing their job correctly."
Danny Kennedy, managing director of the California Clean Energy Fund, which invests in start-ups, said the global growth in 'cleantech' spending to a trillion dollars a year will "absolutely" be a significant driver of the green bond market.
"This is possibly the biggest growth story ever, but we have to get better at packaging it up [for the bond market]. We have barely scratched the surface."
