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San Francisco Makes History With New Water Bond

The city is leveraging the power of green bonds by issuing the first certified under the Water Climate Bonds Standard to help fund projects to repair the city’s aging water infrastructure, including the stormwater and sewer systems.

Written by Tara Lohan Published on Read time Approx. 3 minutes
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Workers repair a brick sewer pipe from 1875 after its collapse led to a sinkhole on Mission Street in San Francisco, California.SFPUC

Finding funding for water infrastructure projects can sometimes be tough, especially for smaller, decentralized projects that don’t fall under the criteria of traditional funding sources. But another avenue for accessing resources is coming to light after the San Francisco Public Utilities Commission last week became the first entity to issue a green bond certified under the Water Climate Bonds Standard.

Green bonds were established as a way to direct private financing to environmental projects, and in less than 10 years, it has it has generated $41.8 billion.

“There has been a real fear that green bonds are greenwashing and you could call any bond green for marketing purposes,” said Monika Freyman, director of the water program at Ceres, a nonprofit mobilizing the business world to take stronger action on sustainability challenges. “If that was the case, the market wouldn’t be seen as credible and there wouldn’t be financial flows dedicated to investing in the market and interest would wane.”

So the Climate Bond Standard was established as a way to help investors verify that climate bonds and other green bonds will in fact be used for their intended purposes. The Climate Bond Standard is driven by the Climate Bonds Initiative, an investor-focused nonprofit focused “on mobilizing the $100 trillion bond market for climate change solutions,” as its website describes.

Within the Climate Bond Standard, the organization has developed specific standards for sectors including renewable energy, transportation and water. The development of the water criteria was a year-long process in collaboration with global water experts and finance experts, including Ceres, the Alliance for Global Water Adaptation, CDP and the World Resources Institute.

“What’s unique and powerful about the green bond market is it does have that scalability which is very much needed both from an investor point of view but also from this incredible gap in infrastructure financing needs as well,” said Freyman. “We are behind in working on infrastructure not only in North America, but globally as well.”

Nick Ut, AP

Workers use heavy equipment to begin the excavation and repair of a broken water main that sent churning, muddy water onto Sunset Boulevard and down hilly side streets on the famed Sunset Strip in West Hollywood, Calif., Sept. 26, 2014. The state currently faces a shortfall of $24 billion for funding water infrastructure. (Nick Ut, AP)

This rings true in California. A report from state treasurer John Chiang highlights a $24 billion funding gap for water infrastructure in California.

“San Francisco’s leadership in issuing the first certified green water bond is a historic step in advancing this nascent but important market to finance sustainable water infrastructure,” said Mindy Lubber, president of Ceres.

SFPUC’s bond with be $240 million Wastewater Revenue Bond that will help fund projects tackling stormwater and wastewater as part of the agency’s Sewer System Improvement Program.

As if to punctuate the need for such a bond, SFPUC tweeted a photo last week of a brick sewer pipe, built in 1875, that needed repairs after its collapse led to a sinkhole on a well-traveled city street.

Like many areas of the country, San Francisco is contending with an aging water system that dates back more than 100 years. The city is also working to try and make its water and sewer infrastructure resilient to climate change and earthquakes.

“Our city’s sewer system was built to last a hundred years. It’s only fitting that we use the latest, most innovative financing techniques to ensure our infrastructure can overcome future environmental challenges while meeting the needs of our community for the next 100 years,” said Harlan Kelly Jr., the general manager of SFPUC.

While SFPUC is leading the charge, Freyman hopes other cities will take similar actions. San Francisco is “breaking ground for more to follow,” she said.

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