Los Angeles mayor's environmental plan pushes green bonds

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Los Angeles Mayor Eric Garcetti launched an environmental plan this week that encourages the use of green bonds.

He gave the city’s debt management team until December to report back on financing instruments and mechanisms, including municipal bond deals the city has already executed that have a positive climate and environmental impact.

That gives the debt management team plenty of time to report on efforts to issue green bonds and what it has planned going forward, said Natalie Brill, the city’s debt manager.

Los Angeles Mayor Eric Garcetti speaks Monday at the signing event for his Green New Deal executive directive.

Garcetti signed the executive directive, “L.A.’s Green New Deal: Leading by Example,” on Monday.

“The science could not be clearer and the stakes could not be higher. We must act this decade to save the planet and create a more equitable, prosperous, and healthy future for our children and grandchildren,” Garcetti said.

The mayor said he signed the executive directive to accelerate the work of the city’s Green New Deal first unveiled in July 2019. It also adopts new steps and stronger accountability measures to align city department policies.

In addition to asking debt managers to create a plan for green bond issuance, it supports Los Angeles County Metropolitan Authority’s proposal to adopt congestion pricing. It mandates that all new construction, major upgrades, and retrofits of municipally owned buildings demonstrate a pathway to carbon neutrality. It encourages city pension boards to explore divesting from fossil fuel companies and investing in the green economy.

The city has issued green bonds three times for its wastewater program since 2015, Brill said.

An upcoming green bond sale through the city’s wastewater program would support a project that converts wastewater to drinking water, Brill said. The city is currently negotiating with the federal government on a Water Infrastructure Finance and Innovation Act loan that would cover nearly half of the cost.

It also has sold bonds through the city’s Proposition HHH $1.2 billion bond measure approved by voters in 2016 to build 10,000 units to combat homelessness as “social bonds,” because Brill said they met the 17 sustainable development goals established by the United Nations in 2015 “to end poverty, protect the planet and ensure prosperity for all by 2030.”

The first green bond issued by the city was $230 million in wastewater system revenue bonds sold in two series by Siebert Brandford Shank & Co. and BofA Securities in 2015.

The disclosure on the city’s green wastewater bonds includes a yearly update on projects outlining how the proceeds are being used.

The city's proprietary departments, Los Angeles International Airport, Los Angeles Department of Water and Power, and the Port of Los Angeles, issue their own bonds and also have green bond programs.

Brill has taken the approach of self-certifying its bonds as opposed to having a third party confirm the bonds' worthiness of having a green bond designation. Brill said she had to defend that decision at publication Environmental Finance’s Green Bonds California symposium hosted at the Milken Institute in Santa Monica in October.

At this point, the city’s financial advisors are saying the market is not differentiating between issuers who self-certify versus those who seek outside certification, she said.

“We are always looking for opportunities to generate more interest from investors in the city – and identifying bonds that can carry the green designation is one way to do that,” said Brill.

The city has received requests from investors on its bond sales, who are specifically interested in green bonds. And she says the use of the green bond designation is “showing up in the numbers,” when the city issues such bonds.

Brill wouldn’t elaborate on what those findings show, because she plans to release that information during a panel on green issuance at the city’s 5th Regional Investor conference March 9-10.

Marla Bleavins, deputy executive director of finance and administration and the chief financial officer for the Port of Los Angeles, and Donna Mills, the Los Angeles County Metropolitan Transportation Authority’s treasurer, are also speaking at that conference about issuing green bonds. LA Metro won the Bond Buyer’s first green-ESG award in December for its $545 million offering of Proposition C sales tax revenue bonds. Mills accepted that award.

The push by the mayor and City Council to encourage leadership in energy and environmental design standards on city projects will also create more opportunities to issue green bonds, Brill said.

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Green bonds City of Los Angeles, CA California Eric Garcetti