Why REITs are turning to green bonds

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REITs are looking to green bonds to fund sustainable developments and secure financing from eco-conscious investors.


  • Green bond use is steadily increasing, with over $1 trillion having been issued since 2007.
  • REITs are using green bonds to fund sustainable projects and capture financing from investors, especially younger, eco-conscious, Millennials.
  • Green bonds are hovering around 7-11% in REIT portfolios, as issuers already tend to be sustainability leaders.

Growing climate change awareness has led to new financial products, as markets seek to capitalize on the demand for responsible and sustainable investment opportunities.

This interest has led to the adoption of Environmental, Social, and Corporate Governance (ESG) commitments by many companies seeking to attract conscientious investors and avoid the kinds of public relations nightmares that occur from operating in dubious regions or engaging in rapacious practices.

To help finance ethical investments, organizations are increasingly issuing green bonds, which are like regular bonds but must be earmarked for projects that benefit the environment.

Applicable projects can include; climate change mitigation, green energy, energy storage, energy or waste use reduction, and efficiency improvements, among others.

While utilities and banks have historically issued the lion’s share of (private sector) green bonds, a third group, real estate investment trusts (REITs), are growing their presence in the sector. Joshua Linder of APG Asset Management explains that “the growth in green bond issuance coming from REITs is a promising development that we expect to continue because of the opportunity for meaningful impact.”

While green bonds are still a small part of the global bond market, there has been significant growth over the past decade, with global issuance growing from $1.3 billion in 2013 to $30 billion in 2014 alone.

More recently, green bond issuance jumped 50% in 2019 compared to 2018, reaching $257.5 billion. In 2020, green bond issuance rose to $305.3 billion, pushing the value of green bonds issued since 2007 past the $1 trillion mark.

Among REITs, Boston Properties issued two offerings in 2018/19 for a combined $1.85 billion. The Kimco Realty Group decided to up its first green bond offering from $300 million to $500 million due to strong demand. In January 2020, Digital Realty Trust issued $833.4 million worth of green bonds.

Shortly after, in March, Canada saw its first REIT-issued green bond when RioCan issued a $350 million offering, with Granite REIT quickly following suit and announcing a $500 million green bond offering.

Wide range of REITs issuing green bonds

Different types of REITs can all benefit from issuing green bonds, as seen by the range of issuers in recent years, such as; Prologis (logistics), Equity Residential (apartments specialist), Vornado Realty Trust (office space operator), and RioCan (retail). Also, data center REITs (such as Digital Realty Trust) are significant players in the green bond sector, given their large energy needs: data center REITs issued 42% of REIT-related green bonds in 2020.

“Issuing a well-structured green bond demonstrates to investors that the issuer is embedding material sustainability considerations into its long-term, strategic business planning,” explains Linder. Sustainability considerations are especially important to younger investors, and REITs seek to court them to grow their investor base.

Speaking on this trend, Nicholas Pfaff of the International Capital Market Association notes that “without a doubt, the younger generations are behind a very significant push to promote green and sustainable finance.”

It is important to note that while the amount of green bonds issued has rapidly increased over the past few years, the percentage of green bonds in REIT portfolios has primarily remained the same between 7-11% over the last 3 years.

This is partly due to the developing nature of green bond issuance among REITs and shows the limit of green bonds to push for change. Specifically, the companies that issue green bonds tend to already be relatively green, with heavy polluters unlikely to announce issuances for fear of public backlash and claims of greenwashing.

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