Massachusetts is again setting the gold standard for muniland. The state has a solid lead in best practices for bond market disclosure, and now it is offering the first ever state-issued “green bond” to fund environmental projects. Here is what is happening, according to Colin MacNaught, the Assistant Treasurer for Debt Management in the Office of State Treasurer Steven Grossman:

As part of our $475 million general obligation bond sale, we’re selling $100 million “Green Bonds” to fund environmentally beneficial projects. The World Bank has already sold approximately $5 billion in dollar-denominated Green Bonds but we may be the first state in the muni market to sell “Green Bonds.”

Many municipalities and private entities use the tax-exempt municipal bond market to fund projects for waste treatment and other uses that could be considered environmental. But it is fascinating that a state has set itself up as a conduit to fund these projects. It is structuring the bonds to be attractive to investors who specifically want to make sustainable investments. From Colin MacNaught again:

The purpose is to give investors – both retail and institutional investors – the ability to invest directly in the green projects we’re undertaking. We hope that by selling Green Bonds, we can get access to the growing pool of capital that’s built up in the sustainable investment world… Major funds have green or sustainable portfolios, a number of pension funds have green or sustainable mandates, etc.

MacNaught points out that the primary asset class for sustainable investment is equities. Green bonds from a big, liquid issuer would provide an important new asset choice. He describes how Massachusetts used the World Bank model for project classifications: