Digital Realty Trust Issues First Global Green Property Bond

The property sector appears to be warming up to green bonds. Over the last year, we have seen a series of offerings from Vornado Realty Trust, Regency Centers, Unibail-Rodamco, Vasakronan, and Stockland.
A new, $500 million green bond issued by Digital Realty Trust, Inc. (NYSE ticker DLR, more on GBIG) marks an important step forward for property-based bonds. Digital’s new bond is distinguished by several important aspects of its specifications for “Eligible Green Projects”, including support for multiple outcomes, provisions for lifecycle thinking, and global scope.
Outcomes. Some organizations have argued for thematically narrow or “boutique” green bonds, such as those focused only on exceptionally aggressive levels of greenhouse gas emission reduction. Digital’s list of eligible projects emphasizes the use of integrative, multi-criteria green building rating systems, while mentioning the potential to pursue savings through energy efficiency, water conservation, or clean energy supply. Consideration for water savings is particularly notable, and it appears to be first for the property sector. This is useful as property managers seek to address risks associated with severe drought in areas such as California and the Western United States.
Lifecycle. Most earlier property bonds have focused on whole building performance, for example, Regency Center’s $250M offering. Digital’s eligible projects include the option to address each of the major phases in the lifecycle of commercial property: new or re-development, renovation, tenant improvement, and system-level upgrades. This practical approach makes it possible to use proceeds for work across the asset lifecycle and demonstrate compliance with widely used schemes, such as LEED for New Construction, LEED for Existing Buildings, LEED for Commercial Interiors, and ASHRAE audits for system improvements.
Scope. Most previous bonds, such as those offered by Vornado or Stockland, have clearly been regional in scope. Digital breaks the trend, and its list of eligible projects clearly suggests the potential for using proceeds for projects around the world. The bond calls out high-quality national rating systems in the US (LEED), UK (BREEAM), and Singapore (Green Mark). Interestingly, it also highlights a fully audited, property type specific rating system, Certified Energy Efficient Datacenter Award (CEEDA).
Digital’s clear and practical guidelines for demonstrating achievements in each of these areas are well aligned with GRESB’s new Green Bond Principles for the Real Estate Sector. The Guidelines provide a practical, sector-specific framework aligned with the widely adopted Green Bonds Principles. The goal is to maximize the use of established industry tools to communicate and document the use of proceeds to support a range of green projects. Ultimately, the objective is to accelerate the use of innovative financing to accelerate market transformation.
Great to see Digital’s leadership role in accessing this important new source of capital.  We’re looking forward to seeing results on the ground.
This article is written by Chris Pyke.