New York City's participation in the green bond sector would provide a huge momentum boost for an emerging financial tool, according to a climate change expert.
"What New York is doing is trying to set up a beachhead," Alan Rubin, a managing director with Tigress Financial Partners, said one day after city Comptroller Scott Stringer accelerated his push for the environmentally conscious financial instrument.
"Green bonds will help broaden our investor base," Stringer told about 300 investors Monday at a Municipal Forum of New York luncheon at the Urban League.
Stringer said his office over the next few months will continue to press for a green bond program. "The market and the environment demand it," he said.
For Stringer, it marks one of several high-profile moves since he took office in January 2014. They range from overhauling the bureau of asset management to social justice-themed advocacy including animal rights.
"We're just getting started," a smiling Stringer said after the speech.
Stringer on Monday
Connecticut on Wednesday intends to sell $250 million to finance wastewater and drinking water infrastructure projects statewide in its first all-green bond sale. Massachusetts in 2013 became the first state offering green bonds, modeling its sale after the World Bank's inaugural 2008 issuance.
"Whatever New York does is looked at by the agencies that rate the bonds - Fitch, Standard & Poor's and Moody's. They are the leaders," said Rubin. "I think for the city comptroller, who oversees one of the largest pension funds in the world, to throw his support behind the program, is going to change the dynamic.
"It's a very bold thing for him to do. You don't always get a chance to be a market leader."
Rubin was nicknamed the "Hurricane Czar" after working extensively in Miami-Dade County, Fla. after Hurricane Andrew caused more than $30 billion in damage in 1992. While working in Lehman Brothers' investment banking division, he also helped design and underwrite the catastrophe fund for hurricane relief.
He said S&P, in particular, is scrutinizing municipalities for resilience measures in the aftermath of Hurricane Sandy, which killed more than 100 people after striking the Eastern seaboard on Oct. 29, 2012. New York City is home to 520 miles of coastline and its infrastructure is aging.
The city has more than $100 million of bonded debt across its general obligation, Transitional Finance Authority and New York Municipal Water Finance Authority credits. Ratings are in the double-A and triple-A range. "The city's financial picture is healthy," said Stringer.
Rubin compared the green bonds growth to that of dot-com and social media companies.
"This kind of explosion doesn't happen very often in the financial world," he said.
The green bond market is also maturing, he added.
"It's no longer a stretch," he said. "We're not in the nascent stage any more. People are no longer asking 'is it shaky'?"
Transparency, he added, should help deflect any lingering skepticism from investors.
"'Where is the demarcation between a green bond and a normal muni? Why is it different than a [mainstream] New York water bond?' These are concerns the market is going to have," Rubin said.
Late last year, staff from Stringer's office and the Mayor's Office of` Management and Budget met with seven "significant institutional" green bond buyers and investment firms focused on environmental, social and government matters.
According to Stringer's report, investors stressed the importance of "ring-fencing" and tracking of bond proceeds, and a transparent process that includes clarity in offering documents.
"Several but not all investors recommended an external verification of the funds flow to assure adequate controls," said the report.
Some green bond transactions have already included third-party verification that proceeds are being spent on projects that are truly green.
"These certifications can provide comfort to investors, especially individual investors, and firms that do not have an internal process for verification," said the report.
