Seattle's Sound Transit sells $1 billion in 'green' bonds to fund transportation projects

By Daniel Niepow, Associate Editor

In early August, Sound Transit sold nearly $1 billion in “green” bonds to fund transportation projects in Seattle and nearby areas. The transaction marked the first time a U.S. transit agency sold these kinds of bonds, which alert investors that the seller will use the proceeds to carry out environmentally friendly, carbon-reducing projects. For Sound Transit, this means the money will go toward adding more than 30 miles of extensions to its Link light-rail system — projects that agency officials say will help reduce the number of cars on local highways and lower greenhouse gas emissions.

The Puget Sound-area transit system’s sale of municipal green bonds also was the largest in the world; earlier this year, Transport for London sold $700 million worth of green bonds, representing the second-biggest sale of municipal green bonds, according to Sean Kidney, chief executive officer of the Climate Bonds Initiative, a not-for-profit organization focused on the green bond market.

A growing trend

Green bonds, which Kidney and other observers see as an emerging trend in the financial industry, help establish an organization’s commitment to positive environmental change, he said.

“You’d be surprised how many investors have never thought of mass transit as green,” Kidney said via email. “This is a way for transit authorities to get access to a bigger market than usual through marketing their bonds as green.”

Most of the proceeds from Sound Transit's "green" bond sale will go toward extending the agency's Link light-rail system.
Photo: Sound Transit's Flickr account

To verify to investors that proceeds will be used for eco-friendly projects, sellers may choose to seek an independent review of their plans, Kidney said.

Sound Transit, for example, commissioned Dutch investment research firm Sustainalytics to double-check that the agency met the International Capital Market Association’s “green bond principles,” which provide voluntary guidelines for issuing green bonds.

“There are no regulations as yet in this market, but independent review of the environmental credentials of the assets involved has become the norm over the past year in terms of establishing credibility,” Kidney said.

Sound Transit’s credibility as a green bond issuer stems from its non-transit business practices, too.

“Across all our lines of business and our internal administration, we’ve got a really disciplined set of goals that we focus on for making buildings more sustainable,” said Sound Transit spokesman Geoff Patrick.

More than 90 percent of the proceeds from the sale will go toward light-rail extensions, but a small portion will be set aside for commuter-rail and express bus investments, Patrick said. The agency is also planning to use some of the money to add passenger accessibility elements, such as pedestrian bridges and parking for cars and bikes.

Sound Transit officials estimate the bond issuance will generate $600 million in revenue, and allow the agency to refinance $398 million of older, higher-interest bonds.

Most of the bond purchasers were traditional large institutional buyers, said Brian McCartan, the agency’s chief financial officer, but he hopes that word of the sale will attract new investors in the future.

“We’re trying to raise the bar for the [green bond] market in general,” McCartan added.