What Higher Education Finance Leaders Should Consider

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A higher education institution’s commitment to sustainability is increasingly viewed as a natural fit for its mission. Now, as “green finance” begins to pick up pace among higher education institutions, finance leaders are proactively determining their institution’s environmental, social, and governance (“ESG”) practices, including risk management and financing opportunities. 

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To be sure, we’re still in the early days of ESG-labeled municipal bonds. While colleges issued quadruple the amount of green bonds (1)—more than $1.7 billion, including via private placement—in 2021 compared with 2020, this is just a sliver of the $50 billion in municipal green bonds issued last year (2) across sectors. However, growing interest in municipal green bond issuance among higher education institutions—combined with the alignment of ESG core principles with educational values and goals, more intense focus (3) on ESG-related performance and risk, and more universities pledging to become carbon neutral (4)—make it clear that green bonds should be on finance teams’ radar. 

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C-suite leaders also should understand the investment cost implications of green bonds—including costs related to resource and reporting requirements—as they consider how to incorporate ESG bonds into their capital planning process. 

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The Move Toward ESG Bond Issuance in Higher Education

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It’s clear that globally, ESG issuance is picking up interest, according to Refinitiv (5), an American-British provider of financial market data. Since the inception of the “sustainable debt” concept in 2007(6), cumulative global bonds issued for ESG initiatives reached $1.7 trillion in 2020, per Refinitiv data, of which green bonds account for about two-thirds. In 2021, global green bond issuance—also known as impact bonds—exceeded $1 trillion for the first time, growing 77 percent, according to ICE Data Services.

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For higher education institutions, a commitment toward reorienting operations to decrease their impact on the environment, such as by reducing greenhouse gas emissions, investing in sustainable development, and incorporating environmentally friendly practices across disciplines, has long been a leadership imperative. Millennials and Generation Z, known as the “Sustainability Generation (7),” embrace ESG issues, and they have been increasingly vocal in demanding ESG accountability from the colleges and universities they attend in recent years. For higher education institutions, taking steps to address climate change is crucial as they prepare a more socially conscious generation for leadership.

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What is new is the emerging emphasis on municipal ESG bond issuance among higher education institutions. In the past year alone:

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• Stanford University became the first higher education institution in U.S. history (8) to issue bonds with dual climate and sustainability designations. The $375 million issuance will be used to finance or refinance capital projects.

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• Oberlin College issued $80.6 million in Series 2021A corporate taxable certified climate bonds that will help the college achieve its goal of becoming carbon neutral by 2025. The bonds represent the second Certified Climate Bond offering among U.S. higher education institutions and the third in the world (9). The $40.4 million Series 2021B corporate taxable bonds—without a climate bond label—sold with an identical 30-year term bond structure (albeit with a significantly smaller par amount) on the same day and priced 5 bps wider at 2.924 percent versus 2.874 percent. While neither of the bonds were index eligible, the bonds were able to achieve a clear “greenium” due to the participation of international cross-over taxable buyers, which historically have been willing to pay greeniums for European green bonds. Although this is the only higher ed transaction that can demonstrate such a greenium relative to a non-green bond thus far, this deal is a clear indication of the potential for pricing differentials to eventually emerge in the municipal capital markets, in H2C’s view.

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• The Ohio State University issued $600 million in Series 2021A bonds (10) with a green bond designation. The bonds will help finance construction of a new inpatient hospital in Columbus, Ohio, that will promote energy efficiency and conserve water. 

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• The California Municipal Authority issued $75 million in Series 2022 municipal taxable green bonds (11) on behalf of the University of San Diego in Spring 2022. The bonds, which received an A1 rating from Moody’s Investors Service, will be used to finance the acquisition, construction, improvement, renovation, and equipping of certain educational facilities to be owned or operated by the university.

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• The University of Michigan issued $300 million in taxable green bonds (12)—the first for the university—in March 2022. The proceeds will help the university achieve its goal of becoming carbon neutral by 2040.

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• Harvard University issued $207.83 million in Series 2022B green bonds via the Massachusetts Development Finance Agency in April 2022. Proceeds from the bonds will finance and refinance construction of a Science and Engineering Complex and renovations to the Adams House and Soldiers Field Park housing; refinance outstanding commercial paper that provided a portion of the original financing for these projects; and pay costs of issuance. The projects are designed to meet the Harvard Green Building Standard, including achieving at least LEED Gold certification, with the complex receiving LEED Platinum and Living Building Challenge certification (13).

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• In May 2022, the Minnesota Higher Education Facilities Authority planned to issue more than $59.7 million in Series 2022A green bonds on behalf of the University of St. Thomas (14). Details regarding how the proceeds will be used were not yet released by May 2, 2022.

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Colleges Embrace Green Bonds