By Mike Cherney
A state agency in Massachusetts recently sold "green bonds," a
type of debt designed to fund environmentally friendly projects.
But the money raised from the sale won't go to a new park, more
bike lanes or a renewable energy facility.
Instead, the Massachusetts State College Building Authority
plans to use some of the funds to build a 725-space parking garage
at Salem State University near Boston.
The garage will have electric-car charging stations and spots
for carpoolers, and officials said it would cut down on pollution
from students who now circle the campus in their cars, looking for
spots. But some analysts and environmental advocates said the
garage still encourages people to drive, a major contributor to
greenhouse-gas emissions.
The debate over the garage underscores the lack of clear rules
for determining what projects help the environment. Investors said
the green-bond market allows companies and governments to tap into
large pools of money for environmental initiatives. But some said
"greenwashing," the financing of projects whose environmental
impacts are at best unclear, could discredit the market and make
buyers wary.
One concern is that there is no mandatory legal framework to
decide what projects are environmentally friendly. That leaves
issuers and banks to decide. Wall Street firms last year adopted
voluntary green-bond guidelines, but critics said they aren't
sufficiently stringent.
"I really don't trust developers and bond issuers to police
themselves, to make sure what they say is green is really green,"
said Karen Orenstein, a senior analyst at environmental group
Friends of the Earth U.S. When asked about using green bonds to pay
for a parking garage, Ms. Orenstein said: "That's why you need
standards."
The Massachusetts agency generally follows the banks' green-bond
guidelines. Edward Adelman, the executive director, said the garage
has environmental positives.
To be open by early 2016, it will free up land for other new
school buildings, reducing sprawl and making the rest of the campus
more pedestrian friendly, he said. It is also being designed to
receive a certification from the Green Parking Council, according
to the bond prospectus.
The issue is becoming more important as the market expands.
Green-bond sales have more than tripled from a year ago in each of
the past two years, with $53.2 billion outstanding at the end of
2014, according to the Climate Bonds Initiative, a nonprofit group
in London.
Big asset managers such as BlackRock Inc., Vanguard Group and
TIAA-CREF have purchased green bonds. Calvert Investments, a $13
billion asset manager, has raised $33 million for a mutual fund
that focuses on green bonds, drawing on what portfolio manager
Matthew Duch calls investors' increasing "social consciousness
about the environment."
The voluntary guidelines, called the "green-bond principles,"
suggest green bonds can pay for renewable energy, clean
transportation and energy efficiency projects. Nothing, however, is
explicitly ruled out.
The guidelines are expected to be updated this month, and many
investors are generally supportive. Still, one group of buyers,
including BlackRock and Pacific Investment Management Co., said
recently that the guidelines "can benefit from further definition
and structure."
"Personally, I do think the principles could use an update and
provide a little bit more rigor," said Rob Fernandez, a credit
analyst at Breckinridge Capital Advisors, which buys green
bonds.
Some investors said having inflexible rules would be
counterproductive, discouraging issuers from selling green bonds
and making it more difficult to pay for environmentally friendly
projects. But they said it is important that issuers are
transparent about how the money is used.
Environmentally dubious deals are rare, and one questionable
bond shouldn't disrupt the market, investors said. But "if there
were multiple events in a short period of time, and investors just
get uncomfortable, that would be a different story," said Manuel
Lewin, head of responsible investment for Zurich Insurance Group, a
green-bond buyer.
At Salem State, where many people commute, students said the
need for parking is real.
"I feel like I'm in a battle with all these people for spots,"
said Tessa Haynes, a junior. "It's a little episode of 'The Hunger
Games,' " a movie about a fight to the death among teens.
The parking garage isn't the only project to come under
scrutiny. Environmental groups, including Friends of the Earth U.S.
and International Rivers, have raised concerns that proceeds from a
green bond sold by French power company GDF Suez SA could help
support a hydropower plant in Brazil. The groups said the plant
could imperil fish species and has increased deforestation.
GDF Suez said "a great effort is being undertaken to understand
and to preserve biodiversity." The company said it is deciding
which projects will benefit from a EUR2.5 billion ($2.66 billion)
green bond it sold last year and will disclose its decision in the
coming weeks.
Mr. Adelman, driving around the Salem State campus, pointed out
cars parked on nearby side streets with university parking
stickers. He said the new garage isn't encouraging people to drive
more but is serving existing students who must park off campus.
"Nobody objects to building a parking garage," said Mr. Adelman,
who drives a hybrid car himself. "The reason it's questioned is
because of the discussion about the green bond."
Write to Mike Cherney at mike.cherney@wsj.com
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