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Green bonds — a way to invest in California water sustainability

In 2014, Californians passed a water bond allotting $7.12 billion to fund key water projects, but that sum doesn’t go far enough. A recent Public Policy Institute of California report found that there is a $2 billion to $3 billion annual funding gap in five key water management areas, including storm water capture and integrated water management.
by Kirsten JamesSF Chronicle Posted on Dec 30, 2015

With the drought comes opportunity and the urgency to make the long-term strategic changes that are necessary to preserve California’s precious water resources. The private sector can and should play a key role in helping California make those changes to get through this drought, while preparing for the next. Let’s start with financing for badly needed water infrastructure upgrades to help us maximize the water we have.

In 2014, Californians passed a water bond allotting $7.12 billion to fund key water projects, but that sum doesn’t go far enough. A recent Public Policy Institute of California report found that there is a $2 billion to $3 billion annual funding gap in five key water management areas, including storm water capture and integrated water management.

Green bonds,” a fast-growing financial instrument for earmarking private financing to fund environmental projects, can help bridge that funding gap. Green bonds were created several years ago to provide investors with a stable asset class for financing environmental projects.

Investors who buy green bonds are paid interest and principal from the same revenue streams as municipal, asset-backed or corporate bonds, except that green bondholders use the proceeds from the bond sales for projects that have environmental benefit. Thus far, green bonds have been used primarily for climate or clean-energy projects. But they can also be used to fund water projects, such as centralized water recycling, storm water capture and groundwater recharge initiatives. Such projects are vital for helping us capture and use freshwater while adapting to the extremes of drought and flood that are anticipated with climate change.

In 2014, California issued its first-ever green bonds, some $300 million worth to support public transportation and water projects. But the state could — and should — think bigger.

Investor appetite for green bonds cannot keep pace with the issuances, which were expected to top $40 billion globally in 2015. What’s more, a developing water standard for green bonds will help catalyze investor interest in water projects, which in turn can help California tap a broader pool of investors while ensuring that water projects that are actually green are funded.

Green bonds are available to institutional and retail investors. Individuals can purchase them via a broker or by going to http://sfchron.cl/1RSaIoL. Socially responsible fund families, such as Calvert and Praxis, offer green bond mutual funds.

Corporations can also issue green bonds, and in fact are the largest issuer to date.

Food companies that have a stake in preserving California’s water for the long term could issue green bonds to help their growers install efficient irrigation systems and water sensing networks, or to finance watershed preservation.

Beyond helping to finance the infrastructure changes California needs to safeguard its long-term water supply, the private sector can and should work to ensure that the state enacts policies to incentivize long-term water sustainability. Food companies that source from California’s fertile agricultural lands, and other businesses that rely on California’s precious water supply, should help to develop and implement the groundwater sustainability plans called for in the historic groundwater law passed in 2014.

California needs to make big structural changes to ensure its water future, and carefully designed partnerships with the private sector can help us go further and faster.

Read the post at SF Chronicle

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Meet the Expert

Kirsten James

Kirsten James, in close partnership with the California Director, develops strategy and policy objectives for Ceres’s California-focused work. She is the lead for tracking and evaluating important statewide policy initiatives and implementation. Kirsten also helps establish and maintain business and investor partnerships within California and collaborates with the Policy and Water Programs to mobilize them in support of public policies that call for sustainable water management, clean energy and greenhouse gas emissions reductions in California.

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