This Rieger Report Spotlight features an in depth interview with Laura Levenstein, Chief Risk Officer and Michael Stanton, Head of Corporate Strategy and Communications to discuss BAM’s GreenStar Project for municipal bonds and what it means to investors.
Rieger Report (RR) – BAM has joined two associations, the Climate Bonds Initiative and the International Capital Markets Association’s Green Bond Principles. Each are integral in the green bond markets. Can you tell us about BAMs role in those organizations?
Laura Levenstein, Chief Risk Officer: CBI and ICMA are the leading global organizations promulgating industry standards for green bonds. BAM’s GreenStar program was developed to build on the ICMA’s Green Bond Principles and turn them into a workable criteria for identifying green bonds in the US municipal market. BAM applied for and received status as an “Observer” of the ICMA Green Bond Principles, and we will continue to offer advice on how to keep them relevant for municipal issuers and investors.
CBI’s role is a little more active – they have developed and maintain specific sector criteria for Certified Climate Bonds, which are a subset of the Green Bond universe and specifically fund projects that have a demonstrable impact on reducing carbon emissions or otherwise mitigating the impacts of climate change. CBI recently added BAM to its list a list of “Approved Verifiers” – firms that have demonstrated the capacity to independently apply CBI’s standards to individual bond issues and determine whether they can be certified – which we think is a valuable endorsement.
RR – What kinds of projects are likely to be covered by the BAM GreenStar program?
LL: BAM insures about 500 new-issue transactions per year, and we expect between 10% and 20% of them will be eligible for the BAM GreenStar. They are primarily for water and wastewater projects, but can also cover energy efficient buildings and transportation investments.
RR – Can you describe the overall objective of the BAM GreenStar Assessment?
Michael Stanton, Head of Corporate Strategy and Communications: As a mutual insurer that is ultimately owned by the local government bond issuers who utilize our insurance, the objective for BAM GreenStar mirrors our broader mission: To help the municipal market operate more efficiently by increasing transparency and investor confidence. Looking at the market ahead of the BAM GreenStar launch, we saw two imbalances:
On the demand side, investor cash flows into accounts that are focused on environmentally sound projects have exceeded the supply of “labelled” municipal green bonds. That forces investors to do additional homework to sort through the market and separate bonds they think qualify as green from the rest of the new-issue supply. That’s inefficient and risky: You end up having analysts at multiple firms investigating the same bonds, but without an independent, third-party assessment, there’s no way to demonstrate the green characteristics of those bonds if and when the investor chooses to sell them in the secondary market.
On the supply side, it became clear to us as we studied the market that a large volume of bonds that would qualify as green bonds under the international market standards were not being labelled as such, either because issuers were not sure how the global standards translated to the U.S. muni market, or because they were concerned about the cost and effort involved in the upfront designation and ongoing reporting.
In putting together the BAM GreenStar program, we addressed those issues head-on. The standards that Laura and our credit committee worked to develop are transparent (view the standards document), and we are publishing specific information about how each BAM GreenStar bond aligns with those standards as part of the BAM Credit Profiles we already provide on each issue, and which are available for free on our web site.
From the issuer’s perspective, we have worked to make the process as straightforward as possible: We merged the green bond analysis with our credit analysis both for the new-issue review, and the ongoing annual compliance updates – so there’s very limited additional time and effort required from the issuer or its transaction team. Perhaps most importantly for municipal issuers who are always fighting for additional resources, the BAM GreenStar designation is available to qualifying BAM-insured bonds at no additional cost.
RR – How does an issuer initially engage with BAM to complete a GreenStar Assessment and what information does BAM require for an initial GreenStar Assessment?
LL: The initial assessment happens automatically when an issuer applies for BAM insurance. In most cases, we are already receiving the documents we need to evaluate the bond’s green status. We’ll look at the official statement, as well as feasibility studies and engineering reports where appropriate.
If the projects being financed qualify as eligible under the BAM GreenStar criteria, we then notify the issuer and transaction team about our initial determination. To complete the process and sell the issue as BAM GreenStar bonds, the issuer has to confirm that substantially all of the proceeds will finance eligible projects.
RR – From a secondary market disclosure perspective, what ongoing information from municipal bond issuers is needed to maintain a BAM GreenStar Assessment?
LL: Green bond investors want to be sure that the issuers are following through with the capital plan they initially laid out during the underwriting process. BAM GreenStar issuers agree to provide annual updates on the construction status of their projects until they are put in service, and BAM reserves the right to remove the BAM GreenStar designation if the proceeds are ultimately spent on projects that are ineligible for green bond financing.
We have designed the ongoing disclosure process to be simple: Most issuers will be able to complete the annual disclosure by filling out a one-page form, and our surveillance team will proactively reach out to keep the process on track.
RR – Changing perspectives, how can RIA’s, wealth managers and financial planners employ the BAM GreenStar Assessment in their interactions with their investors?
MS: Transparency is a major goal of the program, and we think BAM GreenStar allows RIAs and financial planners to initiate a conversation about what green bond investing means, and how investors can deploy their assets in municipal bonds that finance environmentally-positive projects. Many investors already choose to invest in municipal bonds because they want to have a positive social impact with their portfolios, and BAM GreenStar bonds add another layer to that.
From a very practical standpoint, for investors and RIAs who have struggled to find an adequate supply of green bonds to match their investors’ appetites, they can quickly and easily search our Credit Profiles database for a list of outstanding and new-issue green bonds, and each Credit Profile includes information about why that specific issue qualified.
RR – Where can issuers and investors get additional information on the BAM GreenStar Assessment process?
MS: We’ve established a new area on our website – buildamerica.com/greenstar – that includes information on our standards and criteria, links to the international standards that govern the green bond market, as well as additional FAQs and other background information. We’ve also posted a series of brief videos at buildamerica.com/videos in which our analysts explain how we evaluated specific issues to conclude that they qualified for BAM GreenStar status.
Laura Levenstein, Chief Risk Officer
As Head of Risk Management, Laura Levenstein has responsibility for BAM’s risk management strategy and its oversight, including acting as chair of the Enterprise Risk Committee. Laura also serves on the Management, Underwriting and Credit Policy and Surveillance Committees. Before joining BAM, she was Senior Managing Director for Global Public, Project and Infrastructure Finance, which includes US public finance, global sub-sovereign, sovereign, project and infrastructure finance, at Moody’s Investors Service. In that position, as part of the evaluation of the various rated entities, she was responsible for evaluating all types of risk in these sectors to the extent it could impact the entities’ credit profiles. Laura was also responsible for managing all aspects of the rating business relevant to those sectors including, rating assignment, rating methodologies, process operations, strategy, financial performance, rating quality and reputational risks. Prior positions in her over 20-year career at Moody’s included Senior Managing Director for Americas and Global Financial Institutions. Laura holds a B.A. in Mathematics from Cornell University.
Michael Stanton, Head of Corporate Strategy and Communications
Mike Stanton is in charge of developing strategy and directing communications. He joined BAM from SourceMedia, where he was Senior Vice President for Capital Markets, managing a group of four major publications, including The Bond Buyer, the company’s flagship municipal finance daily newspaper and website. He joined The Bond Buyer as a reporter in 1995 and served in multiple positions with the newspaper and its parent, including Editor-in-Chief and Publisher. During the course of his career, he has been responsible for business and product development, including managing the ongoing transition of the group’s audiences from print to online delivery platforms. He is a graduate of Columbia University and received an MBA from Harvard Business School.