Evolution of U.S. State and Local Government Green Bond Issuance

Abstract

This paper aims to inquire empirically about an increasingly important phenomenon in the state and local government bond market -- the issuance of green bonds. Green bonds have the same security as traditional bonds but include a green label to signify that the bond proceeds will be used to finance projects that benefit the environment. We investigate U.S. state and local government green bond trends and characteristics using a database of all green and non-green bonds issued in 2013-2021. We also report findings from our interviews with early issuers and our analysis of more recent green bonds, focusing on external verification and disclosure. From a volume perspective, we find that the municipal green bond market has been dominated by large issuers in several states. However, the issuance of green bonds is more dispersed. The number of states with at least one green bond issuer within a year and the number of unique issuers per year have grown significantly. Water and wastewater projects remain the most common type of state and local government green bonds, but there has been growth in green bonds for housing and public power. One of the biggest changes has been the increase in the use of external parties to verify what constitutes green; however, the reporting of environmental metrics remains limited.