Digital Realty's green bond issuance- Smart Energy Decisions

Commercial, Energy Efficiency, Industrial, Commercial, Finance, Industrial  -  August 9, 2017 - By Amy Poszywak

Green bond funds help Digital Realty hit energy goals

As the use of green bonds continues to increase among U.S. corporations, Digital Realty in 2016 became one of the first REITs, and the first data center REIT, to successfully complete an issuance.

Green bonds are classified as "green" for the requirement that capital raised through them be exclusively used for environment-friendly investments. The asset class has been viewed as a fast-growing source of low-cost debt for renewable energy and energy efficiency programs, with issuances from large commercial and industrial corporations such as Apple, Bank of America and Unilever hitting the market in recent years.

For Digital Realty, the decision to utilize the debt investment vehicle fit squarely within the company's ongoing sustainability strategy. Officially launched in 2015 with a series of specific initiatives that include greater energy efficiency and renewable energy use, the specialty REIT's focus on sustainability has accelerated in recent years, according to Aaron Binkley, director of sustainability programs.

Alongside those efforts, the company has been working more transparently to communicate them to key stakeholders. The launch of Digital Realty's sustainability website and its adoption of environmental, social and governance and socially responsible investment reporting practices soon followed, Binkley recently told Smart Energy Decisions.

"All of those things are aimed at getting information out to stakeholders, and the green bond issuance plays right into that piece of our strategy," he said. "It gave us an opportunity, not only to find a source of capital for funding the business and green projects, but it allowed us to reach out to an SRI community that we hadn't explicitly done outreach to or targeted in the past. It was an opportunity to share that message and bring them along on our sustainability journey and get them comfortable with Digital Realty as a company and with our green efforts."

The company’s June 2015 issuance of 3.950% notes due 2022 yielded net proceeds of more than $493 million, which supported nine projects in four countries that have received certification in accordance with the U.S. Green Building Council’s LEED, BREEAM or CEEDA ratings standards. Details for each are outlined in Digital Realty's June 2016 use of proceeds statement.

Notably, Binkley characterized internal support for the issuance as early and broad from senior management down. Digital Realty CFO Andy Power, for example, was on board from the start, having just stepped into the role earlier in 2015.

"[Power] was looking to make sure he was reaching the broadest base of investors to support Digital Realty's goals," Binkley said.

Beyond that, Binkley said there was little question that Digital Realty wanted to do the issuance, but getting past various due diligence and feasibility questions did take time.

"The internal questions were a lot of, 'will this be an onerous process' or 'will it slow down the process of issuing bonds versus a traditional, vanilla bond issuance?'" he said. "A lot of the conversations were, in part, me getting management comfortable that we did have projects that fit the requirements of the green bond and that we could document that we've spent [the proceeds] accordingly and that there's a process in place for it. So we spent time confirming those aspects of it."

More broadly, Digital Realty's energy strategy includes a sharp focus on energy efficiency within its data centers and the pursuit of its long-term 100% renewable energy goal. The company in 2016 signed a long-term power purchase agreement for 400,000 MWh of the power from the 200-MW Colbeck's Corner wind farm in the Texas Panhandle and recently ranked twelfth on the U.S. EPA's national top 100 list of green power users.

"In terms of procurement, we have said we'll take it wherever we can get it, in terms of an all of the above strategy for renewables," Binkley said. "So we're looking at everything from onsite, net metered projects, all the way up through utility-scale PPAs, green tariffs from utilities and even renewable energy credits, in some cases, where appropriate."

As for whether the company is planning to do more green bond issuances, Binkley said the door is open.

"I’ll defer to the CFO when it comes to keeping the company funded and what our mix is, but the response from the investment community was positive," he said.

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