Martha’s Vineyard Land Bank (MV Land Bank), the Massachusetts-based municipal bank, has issued US$35m of AA-rated green bonds. The bond has a range of maturities from 5 to 20 years, with semi-annual coupons ranging from 3.25 to 5%. This first green offering from MV Land Bank is callable, and exempt from federal and state tax, as is common for municipal bonds in the US. RBC Capital Markets was underwriter for the bonds.
Unlike the other green muni bonds we’ve seen so far, this bond is not a general obligation bond – instead, the bond is issued against pledged receipts and revenues from MV Land Bank. Interesting with new green muni bond type! To avoid the increased risk of this structure reducing investor demand, MV Land Bank got a bond insurance policy from BAM (Build America Mutual), which guarantees the payment of principle and interest on the bonds. This successfully allowed the bond to get an investment grade credit rating. Great to see an example of credit enhancement tools being applied to green bonds, as they play an important role in scaling the investment-grade green bond deal flow at the necessary speed, particularly for less established low-carbon investments.
Ah, low-carbon investments… That brings us to an important point: While the MV bond is green, it has minimal climate benefits. Proceeds will be used to refinance existing bonds that funded;
- Acquisition of various properties on Martha’s Vineyard unique for their aesthetic, agricultural, wildlife and passive recreational features
- Acquisition of 190 acre tract of land in town of Oak Bluffs – known as the southern woodlands; designated as a core habitat by Commonwealth of Massachusetts
Now, funding projects that are important to the local green environment, with benefits both for local residents and the biodiversity of local wildlife is clearly green, by one definition of the word. To us, the climate change challenge is the main environmentally related challenge globally, and we would therefore like all green bonds to have a climate aspect, whether in mitigating or adapting to climate change. But we accept (somewhat reluctantly!) that some investors may want to invest also in bonds that finance green projects without a climate component.
What we want to avoid though, is investors who are looking to invest particularly in climate solutions seeing the green label and thinking, “hey, that’s labelled green, that will do the trick for my climate investment needs!” At first glance, it might seem a reasonable conclusion to draw considering that the majority of labelled green bonds to date have had some climate component, but as this MV Land bond illustrates, it’s not that simple.
Another challenge for non-climate green bonds is the lack of standards around what assets qualify as green. Without standards, ensuring robust credentials while rapidly scaling issuance becomes tricky; bond markets thrive on scale and standardisation. While we are developing science-based green bonds standards for various low-carbon assets, we’re not aware of anyone picking up that issue for green, non-climate assets, leaving investors with limited tools to easily assess the green impact of their investments.
So, the green vs climate issue aside, how does MV Land Bank sit against market best practice of verification and reporting? MV Land Bank does not appear to have a second opinion on the use of proceeds, which is the case for many green bond issuers in the US, but nevertheless, something we would’ve liked to see. There is also no information on reporting commitments on the green credentials of the bonds over time, which again is useful for investors.
