October 2017

The Analogy of Fall Baseball

By Warren Shoen

Term of the Month

By Ny Lee

Green Bonds

A green bond is a security whose proceeds are used to fund environmentally friendly projects related to clean water, pollution control, renewable energy, land development, habitat restoration and many other related projects.

Green bonds are a relatively new concept with the first issuance, a €600 million green bond, issued by the European Investment Bank in 2007. That issuance was followed in 2008 by a SEK 2.3 billion green bond by The World Bank.  Through 2012, these multilateral banks were the only issuers of green bonds, after which point the first corporate green bonds began to appear.  Since then, the global market has grown significantly with an estimate of reaching $150 billion by the end of 2017.

Structurally, a green bond is not any different than a standard bond, with similar risks, tenures, pricing and rating; the sole difference being the designated use of the proceeds. Green bonds are typically categorized into four types based on the intended use of proceeds and/or recourse:

  • Use-of-proceeds bonds: full recourse to the issuer’s assets
  • Use-of-proceeds revenue bonds: recourse only to the project revenue stream
  • Project bonds: investors have direct exposure to the green project
  • Securitized bonds: the relevant revenue stream is generated by a group of green projects

Currently, there is no domestic regulatory policy or uniform global standardization for which to certify a bond as a green bond. There are, however, two independently developed guidelines by the International Finance Corporation and the Climate Bond Initiative group that appear to be acceptable by many issuers around the world. But these principal guidelines are only voluntary and carry no regulatory weight. Thus far, only a few countries, including China and India, have passed some form of legislation to identify green standards.

In general, a green bond is a normal bond that allows an investor to make a return while financing environmentally beneficial projects. In the United States, certain green bonds are also tax-exempt, not because of the cause of the bond but rather the issuer itself may be a federally qualified issuer, such as a municipality or retirement fund.

Sources: Investopedia, Wall Street Journal, Climate Bonds Initiative, International Finance Corporation

Bits & Pieces

By Jeff Torrison

  • Approximately $2 trillion is wagered on sporting events each year according to an article in the September 23, 2017, issue of The Economist. That’s about 7% higher than Italy’s annual GDP.
  • In October of 1969 President Nixon authorized operation Giant Lance in which US B-52 bombers loaded with atomic weapons flew towards the Soviet Union and then diverted to the polar ice cap where they flew loops before returning to their bases in the western United States. Nixon’s theory was that by acting in an apparently irrational manner he could get the Soviet Union to apply pressure against North Vietnam in support of America’s position towards the country.
  • Counties in Florida and Texas that suffered damage from the recent hurricanes issued 13% of the total building permits in the US in 2016 per the September, 20, 2017, issue of The Wall Street Journal.
  • 1 in 16 people went to an emergency room in 2014 for treatment of injuries sustained at home per an article in the October 2017 issue of The Atlantic.
  • This year marks the 100th anniversary of Finland’s independence after being an autonomous grand duchy of the Russian Empire since 1806. Before then it had been under Swedish rule for centuries. In 1906, almost a decade before it became independent, Finland gave voting rights to all adult citizens.  This was 14 years before the ratification of the 20th Amendment to the US Constitution which gave women the right to vote.
  • Johnny Carson began hosting the Tonight Show 55 years ago in October of 1962 and continued in this role for almost 30 years, broadcasting more than 4,500 episodes. Over 90 million people have been born in the US since his show was last on the air.