There are a multitude of ways for hotel companies to keep their operations in line with sustainable initiatives, but financing can be an environmentally responsible endeavor, too, thanks to green bonds.
Green bonds work much like other bonds in the investment market, except they fund climate-minded projects such as renewable energy, green buildings, sustainable transportation and climate-resilient infrastructure. There are some additional layers of auditing and reporting with green bonds to ensure proceeds from the bond are going toward sufficiently green purposes.
Yet as a fairly new product in the financial market, having only been available for about 10 years, green bonds are quickly becoming attractive to institutions and asset managers that are trying to be either more socially responsible about investments or more active with clean energy or low-carbon projects, or simply need to raise capital for a sustainability-related project.
“Green bonds are great to issue if you have a significant, upfront, big capital cost,” says Meg Crocker, an independent financial consultant based in San Francisco. “That’s why a lot of cities will do it for climate resiliency and water plans. And you can pay it back with proceeds from the investments you’ve made.”
A few hotel companies are making forays into green bonds. Swire Properties, the parent company of Swire Hotels, recently issued its first green bond in Hong Kong, where the net proceeds will fund the company’s green projects. This year, France’s AccorHotels acquired its head office building in Paris using a green mortgage loan.
While the franchised nature of the hotel industry complicates the issuing and investment in green bonds, there are ways for hotel management groups to get involved.
“In most cases, it will be the owner of a property or asset, rather than the hotel management group, that will seek out green bonds as a means to finance a sustainability-related project,” says Michael Laas, founder of Sustainable Futures Group, a Miami-based sustainability consulting company. “However, hotel management groups are an important partner in the process and can use green bonds as a creative tool for capital expenditure, if it meets the requirements of a green bond.”
Laas cites examples of REITs using green bonds to finance projects with high green building standards such as LEED certification, as well as for building retrofits related to energy performance, water and efficiency. “It is not far off that soon a REIT will use green bonds to finance debt or development of new or existing hospitality properties,” he says.
While investing in green bonds might boost a company’s green status, especially when it comes to marketing and branding purposes, interest rates still dictate what’s a sound investment and what is not.
“Green bonds must be a competitive or better option to traditional debt financing for it to be an attractive alternative,” Laas cautions. “So make sure the interest rates are beneficial for business.”
KINDS OF GREEN BONDS
According to Bank of America, which has issued four corporate green bonds totaling about US$4.25 billion since 2013, there are four types of green bonds:
Green Use of Proceeds Bonds: Issued by financial institutions and corporations, the proceeds are used for green projects.
Green Asset-Backed Bonds: A smaller group of assets can issue these bonds for things like rooftop solar panels and mortgages for energy-efficient homes.
Green Project Bonds: Issued for large-scale green efforts like a wind farm or transportation projects, assets and profits fund the green bond debt.
Pure Play Bonds: Issued by companies in green industries and whose revenue comes from the environment sector, such as a solar farm, electric-car maker or a waste-recycling plant.