Finding the Green to Finance Green Investments
Prologis once again demonstrated its commitment to sustainability. On March 1, 2018, the global leader in industrial real estate became the first REIT in the sector to issue green bonds.
Green bonds are a rapidly growing financial instrument issued for the specific purpose of funding energy efficiency, renewable energy, and other initiatives that boost sustainability and reduce environmental impacts. In 2017, some $155 billion in green bonds were issued, up 78 percent from 2016 according to the Climate Bonds Initiative. Green bonds are growing in popularity in part because investors seek ways to help advance their sustainability objectives.
Prologis' green bonds were issued by one of its co-investment vehicles, the Prologis European Logistics Fund (PELF). Prologis International Funding, a PELF subsidiary, issued €300 million in green bonds on March 1. The 10-year bonds, expected to receive an A3 rating from Moody’s Investor Services and an A- from Standard & Poor’s Credit Markets Services Limited, bear an interest rate of 1.75 percent. The notes were listed on the Euro MTF market of the Luxembourg Stock Exchange and displayed on the Luxembourg Green Exchange in mid-March.
PELF, based in Luxembourg, is an €8.5 billion open-ended fund that has 9.9 million square meters of office space in 469 buildings in 12 countries. As with all Prologis funds, PELF has pursued sustainability efforts—motivated by customer desire to be in sustainable properties and the company’s commitment to reduce energy use and make a positive impact on the communities in which it operates. Across the globe, Prologis has developed one of the largest corporate portfolios of rooftop solar (175 megawatts), pursued and received sustainable certifications for many of its properties, and rolled out energy-efficient lighting.
Issuing green bonds represents an opportunity to tap into a new and growing source of financing to further these initiatives.
The plan is for PELF to invest proceeds from the issuance in several ways. The fund will use proceeds to obtain green certifications for buildings within its portfolio from such organizations as LEED or BREEAM. Proceeds will also be used to refurbish buildings; boost energy and water efficiency; fund LED lighting, cool roofs or waste diversion systems; and build or install renewable energy capabilities, such as rooftop solar.
The underlying idea is that sustainability is good business. Moody’s noted that the fund’s green bond framework is a credit-positive event. Why? Because it will help attract and retain tenants who care about the sustainability of their offices and facilities. What’s more, buildings that score highly on environmental certifications tend to have lower operating costs. Finally, offering green bonds expands the pool of potential investors in the fund’s and the company’s bonds.
“The pricing of PELF’s inaugural green bond today furthers our commitment to sustainability and supporting projects that benefit our customers and the communities in which we work and live,” said Thomas S. Olinger, chief financial officer, Prologis. “We look forward to investing further in sustainable initiatives on behalf of all Prologis entities and are pleased to have established this important relationship with the green investment community.”