Financing Climate-Resilient Infrastructure in California and Beyond

California may have made climate headlines last week by hosting the Global Climate Action Summit, but an August report from California’s Treasurer John Chiang and the Milken Institute describes near-term actionable strategies to grow the Green Bond Market in California and beyond. For anyone new to the climate finance discussion, the report offers a clear and concise introduction to the green bonds market.

What are green bonds?

Green bonds are debt financing for projects with a positive environmental or climate benefit. Though the worldwide green bond market is growing quickly and is expected to reach $300 billion in 2018, it is still only a fraction of the overall bond market. Many, if not most, water infrastructure projects in California are inherently green, yet few are financed with labelled green bonds.

What’s new with this report?

The report contains outcomes of the California Green Bonds Symposium, which was co-convened by Treasurer Chiang and the Milken Institute in February 2018. At the Symposium, government leaders, investors, issuers, underwriters and project developers met to identify barriers and solutions to growing the green bonds market in California. Presented in a Finance Innovations Lab format guided by the Milken Institute, this gathering was the first event of its kind in the US.

California finance officers – take notice

Building and modifying infrastructure to address climate impacts is going to be costly. In California alone, $44.5 billion is needed for infrastructure to protect drinking water supplies and $26.2 billion for wastewater infrastructure.

In total, more than $400 billion is needed over the next 10 years to protect California’s water systems, dams, bridges, roads, buildings, energy generation and transmission systems, communications systems and more.

The cost of waiting or doing nothing is even higher due to sea level rise, extreme weather events, increased fire activity and related damage to infrastructure. This report identifies barriers to growing the green bond market in California and recommends clear next steps toward solutions.

Barriers, recommendations and next steps


To get more issuers into the market, Lab participants recommended more standardization for green bonds criteria, data, reporting and disclosures. One means of accomplishing this might be for California to establish a statewide Responsible Issuer Program to offer transaction support, guidance and incentives for municipalities to issue green bonds. The program would create a one-stop shop for issuers and investors looking to participate in California’s green municipal bond market.

Next steps? The Treasurer has convened a working group to assess what is needed to move such a program forward.


Another barrier that was identified is pricing. Issuers want to minimize additional costs associated with green bonds. Because environmental externalities are not typically reflected in bond pricing, there is not much pricing advantage to date. Without a clear price benefit, issuers may be reluctant to use green bonds.

Solutions that were identified include establishing a California Green Bond Credit Enhancement program—similar to state-operated mortgage insurance programs; and possibly establishing a California Green Bond Bank. The Green Bond Bank could operate under one of the state’s existing financial authorities or an entirely new entity could be formed. Participants also discussed creation of a city or regional model, such as a Los Angeles bond bank.

Next steps? A scoping exercise to better understand demand for credit enhancements and the pricing and administrative costs; and state policymakers will be asked to consider legislation to promote development of a green bond bank.

Bond Market

The bond market’s idiosyncrasies were also identified as a barrier. Many institutional investors that could potentially buy green bonds, cannot purchase small bond issuances; and not every investor is motivated by the tax benefits of municipal bonds. Aggregating smaller issuances into a regional pool or bank could make it possible for larger investors to participate in the green bonds market. One of the state’s existing issuing authorities could be used for pooled bonds. Building a taxable municipal bond program could entice tax-exempt investors to the market.

Next steps? Identify municipalities and agencies that are interested in participating in a green bond pool. To create a taxable green bond program, policymakers will gauge the potential demand from issuers to determine how much funding would be needed to capitalize the subsidy pool.

Green bonds can be an easily accessible finance tool for every municipal water agency. As a practitioner working on green bonds in California, I see the barriers continuing to decrease as we all work together to catalyze the green bond market.