Navigating green finance: a first step for Bay Area Rapid Transit
Rose Poblete, controller/treasurer at (San Francisco) Bay Area Rapid Transit (BART), was part of the team that issued the company’s first green bonds in May 2017, to finance projects that provide mass transit services through electric rail. Here, she discusses the benefits of green financing, the skills her team required to make the issue happen and the reaction from investors, such as ESG-focused institutions.
Why did BART opt to issue its first climate bond in 2017?
I think, before us, the only other US transportation entity that had issued similar bonds was New York Transit. I spoke to the board about green bonds and they were really interested, though at that time we were not sure if they presented us with an opportunity to save money or not. But we figured it was good for us to do it, being in the Bay area, which, as you know, is very sensitive to environmental issues.
Do you think that the bonds’ ‘Certified Climate Bond’ status helped in attracting investors?
Once we successfully obtained third-party certification from the Climate Bonds Initiative (CBI), we were able to make this a critical part of our marketing effort and it certainly helped to drive a lot of media coverage. We received an overwhelming response from both retail and institutional investors.
We also modified the syndicate policy to provide priority in orders to institutional investors who had an ESG focus — we took 25% from ESG-focused funds. One of those investors wanted to engage directly with our sustainability group; they had a very in-depth conversation that went far beyond simply establishing that we were “green” — they wanted to get as much information as possible.
What is it about ESG funds that make them attractive to long-term investors?
For me it makes sense that they're not just looking for a place to park their money, because they can park it anywhere. If you're specifically telling your fund manager: "I will only invest in green bonds", you're just not an investor looking for a quick buck, it tells me that you really care about this.
As one of the forerunners in your sector, were there any challenges for the finance function in getting to grips with green bonds?
We didn't really have any existing model to base our approach upon. The finance team had to quickly get up to speed with all aspects of issuing green bonds and the certification process. There was a significant amount of internal and external collaboration involved.
On the finance side, we had our underwriters, our financial advisors and our bond council. We then had to work alongside the mechanical and engineering departments which were going to spend the money, with external affairs so we could coordinate the marketing effort, and with the General Counsel. We also started working with our sustainability team, so we could plan our bond funds for eligible capital projects — I think it was important to bring them in early on.
Externally, we had to select a verification agent to evaluate the framework against the CBI’s low carbon land transport criteria, and then coordinate with the CBI itself in relation to the certification process.
It was time consuming for staff and consultants and there were some incremental costs, but it wasn't a huge amount of money, and we’re now more experienced as a team, so we understand what to expect.
How would you like to see green bonds evolve to improve the process for issuers?
It's fairly early in the process here in the US, but I think it would be helpful to standardize a lot more. When we were seeking advice on what we needed to do, different sources had different answers for different things, so it would be nice, as the industry evolves, to have a recognized industry standard emerging — that way it would be less confusing for issuers.
Will you consider issuing green bonds again in the future?
Absolutely. I think, again, being in the Bay area, and with our sustainability goals, it's a no-brainer, now that we know how to do it.