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June 15, 2015
Morgan Stanley Issues $500 Million Green Bond
    by Robert Kropp

The investment bank intends to fund a number of wind energy projects in the US.


Sustainable fixed income investments have been represented in the portfolios of sustainable investors for many years; both for meeting investors' commitments to community investment, and, in recent years, as a means of helping to fund a transition to a low-carbon economy.

The emphasis on a low-carbon transition was highlighted at a UN investors' conference on climate change, when the host organization Ceres unveiled its Clean Trillion campaign, which called for investments of $1 trillion per year by 2030 to combat the worst effects of climate change. Part of the campaign was the launch of the Green Bond Principles, a voluntary initiative undertaken by financial institutions which “encourage transparency, disclosure and integrity in the development of the Green Bond market.”

One of the initial signatories to the Principles was Morgan Stanley, which last week
announced the issuance of a $500 million green bond whose proceeds would be largely devoted to wind farm projects. As significant as the issuance itself was Morgan Stanley's arrangement with DNV GL, an independent certification expert in renewables and energy efficiency; “On the basis of the information provided by Morgan Stanley and the work undertaken, it is DNV GL’s opinion that the Morgan Stanley Green Bond meets the criteria set out in the Morgan Stanley Green Bond Framework and is aligned with the Green Bond Principles,” the second party opinion for the issuance states.

No one would deny that the issuance of a major green bond by an influential global financial institution is a positive development in the gradual transition to a low-carbon economy, and an important development in the rapidly growing green bond field of finance. I highlight Morgan Stanley's publication of DNV's analysis of its offering because, as the nongovernmental organization (NGO)
BankTrack observed in a letter on the 2015 update of the Green Bond Principles, “of 141 bonds issued, 81 (or 57%) were accompanied by a 'second opinion' providing some level of assurance as recommended by the Principles. However, this opinion was only made public in 50 cases (35% of the total).” Thus Morgan Stanley is to be commended for its commitment to transparency in this case.

Also of importance, BankTrack further notes, is the tendency of some Green Bond signatory banks of continuing to finance even the most destructive fossil fuel projects, including the construction of coal-fired power plants and mountaintop removal. “Institutions underwriting or investing in green bonds must also give urgent attention to decreasing their financial support (including investment, underwriting, lending or other forms of financing) for the extraction, production, or utilization of fossil fuels,” BankTrack stated, “as without this, efforts to combat climate change by growing the green bond market will fail.”

In its
Banking on Coal 2014 report, BankTrack ranked Morgan Stanley eighth among global financial institutions financing coal projects, in the amount of about $18 million between 2005 and 2014. Several of the major US headquartered investment banks have backed off in their financing of coal projects during the last year or so; it is to be hoped that Morgan Stanley, with its recent commitment to increasing the funding of renewable energy projects, is among them.

The alternative is a persistent cynicism about the banks' commitment, one which I observed upon finding Bank of America—ranked sixth among global banks financing coal projects—on the dais at the UN, extolling the sustainable virtues of green bonds.

 

 
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