25 September 2019
Ahead of the Green Bonds California conference, the Treasurer explains why green bonds are a key part of her strategy for the state's finances
Q: Why is the state taking an interest in the green bond market?
A: The science is clear: climate change is real and it is affecting the globe in ways that threaten our way of life and the governmental infrastructure that citizens rely on in their everyday lives.
That infrastructure is already aging in the United States and California. Replacement costs are difficult to measure accurately.
My goal – and the goal of the state's policymakers – is to address the causes of climate change and build a more resilient infrastructure system that will keep California competitive for future generations.
Q: What can the state do help scale up the green bond market? Would it consider incentivizing or rewarding issuance?
A: Even though climate change feels as though it is occurring slowly, we have little time to waste.
Our planning for financing changes to our physical infrastructure needs to stay sympathetic to how we pay for those assets over time. By emphasizing the need for financing – that provides the capital to replace these assets – policymakers will make better decisions about allocating scarce public resources to this problem.
But, to be successful, there has to be a meaningful conversation between the lenders of that capital and the borrowers.
We know that investors are already expressing a desire for investment products that are clearly identified as environmentally friendly. Yet, our capital raising process has rarely had to sort investment opportunities in that way. Now is the time to change that way of thinking.
It starts with having the "end in mind."
Green finance is the key to replacing our aging infrastructure, providing facilities that keep our economy strong, and meeting this growing investment demand.
Green finance is the key to replacing our aging infrastructure, providing facilities that keep our economy strong, and meeting this growing investment demand
Incentivizing or rewarding issuance will likely have to be in the form of psychic rewards rather than financial ones. The taxpayers are already absorbing the cost of environmental programs.
What they want to see next is the investors who "vote with their wallets" for green finance by rewarding issuers who take on this difficult process and produce the investment vehicles those investors seek.
Q: Are there any examples of best practice you can point to, that others should follow?
A: I am chairing a California Green Bond Development Committee that seeks to either develop or spur the development of best practices.
Adhering to the various standards that are under development throughout the world will accelerate the adoption of such practices.
Q: What are the climate targets set by the state?
A: California already has a well-developed climate strategy. The vision of that strategy is to reduce greenhouse gas emissions to 40% below 1990 levels by the year 2030.
To do that, California's goals are to increase renewable electricity production by 50%, reduce petroleum use in our vehicles by 50%, and double our energy efficiency at existing buildings.
California is a leader in this area. There is a climate change research plan, and a broad base of statutory and executive-ordered initiatives already in place in our state.
California has a "cap-and-trade" system for offsets. California has a climate action research team in place.
Now, we need to respond by hooking the financing of our fixed assets to the investors who will reward that fine work.
Q: What are the green infrastructure considerations/priorities for the state?
A: In the world, China is the largest emitter of CO₂. The United States is next.
Because California is such a large part of the world economy – we have the world's fifth-largest economy just in our state – we need to lead this effort.
Because of the size of our state, the impacts of climate change will affect us in a variety of ways. This goes well beyond the obvious risks of public assets installed at sea level.
Our state is prone to drought events. California's water is supplied by a natural system that assumes that precipitation falling on our state is collected and stored in the form of snow.
Thus, our reservoirs and transportation systems have a heavy emphasis in watershed areas at higher elevations. As the planet warms, more of that precipitation will come as rain – and we need to develop systems to store more of that precious water in liquid form, rather than snow.
Wildfires are an increasing worry in California. The November that destroyed the community of Paradise was the deadliest in California's history.
Eighty-five people lost their lives in that catastrophe. In sum, California will need to focus on several elements of the climate problem: adaptation, resilience, and sustainability.
Q: In what ways does the state need to become more resilient to the impacts of climate change and how can the green bond market help?
By changing our way of borrowing money – using the green bond market – we can achieve all of our policy goals: a strong economy, stewardship of our environment, financial prudence, and a better life for the people we serve
A: California's taxpayers rely on physical assets for mobility, economic activity and everyday life. These assets are long-term in nature.
As a result, simple fairness requires that the costs of those assets be spread over the generations of Californians who will benefit from them.
So, by changing our way of borrowing money – using the green bond market – we can achieve all of our policy goals: a strong economy, stewardship of our environment, financial prudence, and a better life for the people we serve.
Fiona Ma will be delivering the keynote address at Green Bonds California, in Santa Monica, on 16 October. Her speech will be on the theme of: How is the state driving its green finance agenda?