July 19, 2024


Built General Tough

Stanford issues first bond in U.S. higher education based on rigorous environmental stewardship and social responsibility standards

Stanford has become the first U.S. college or university to issue bonds carrying dual climate and sustainability designations for financing campus construction and renovation projects.

The bonds are rooted in the university’s commitment to environmental stewardship and social responsibility standards over years of foundational work to expand the university’s shift toward renewable energy sources and programs to balance social equity.

The result is a wide-ranging series of initiatives to address critical challenges – from energy-management projects placing the institution on a path toward zero emissions to presidential initiatives that boost diversity in education and research – that are now helping shape the way campus projects can be financed.

On April 7, 2021, Stanford went to market selling $375 million in public market debt securities to help finance or refinance various projects included in the university’s capital plan.

The securities are in the emerging ESG (Environmental, Social and Governance) investment category. Two ESG designations have been externally verified: the International Capital Markets Association’s Sustainability Bond designation and the even more rigorous Climate Bond Certification, reflecting alignment with the Paris climate accord. Both are based on the United Nations’ Sustainable Development goals.

Expanding the impact of social responsibility initiatives

Stanford President Marc Tessier-Lavigne said the bond issue underscores the university’s work to tackle environmental challenges and promote access and inclusion.

“This combination of bond designations represents a first, not only for Stanford but for U.S. higher education. Such an achievement could only happen because of our persistent and deliberate actions – in all corners of our campus community – to curb our carbon footprint and to reduce social inequities,” Tessier-Lavigne said. “From our founding grant, Stanford has always strived to benefit the world around us. We recognize that we must operate by the same rigorous standards that we apply to research and scholarship, as we work to advance solutions to the urgent needs of our planet and society.”

Leading by example

Projects on other college campuses meeting ESG, sustainability and climate standards create investment opportunities for the emerging class of funds whose portfolios and strategies prioritize social and environmental responsibility.

The Stanford bonds also received sustainability and climate certifications – a step that State Treasurer Fiona Ma said marks a new era in higher education bond funding.

“ESG financing provides the multi-pronged benefits of greenhouse emission reductions, health equity research, affordable housing, and systemic and academic equity,” Treasurer Ma said. “I hope more California colleges will follow Stanford’s lead.”

Exacting standards and external review

Like most universities, Stanford routinely issues debt securities as needed to fund capital projects such as campus buildings and spaces. These fixed-income securities are repaid with interest to investors over a fixed number of years.

“We wanted our ESG designation to demonstrate a more rigorous level of scrutiny than self-regulated bonds. That’s why we elected to undergo an external review through an independent party,” said Randy Livingston, vice president for business affairs, chief financial officer and university liaison for Stanford Medicine.

“Because we were able to meet some very exacting standards,” Livingston said. “Stanford qualified for this emerging asset class that recognizes the university’s ongoing, campus-wide sustainability and social responsibility efforts.”

Kestrel Verifiers conducted the independent review that determined how Stanford’s programs match up with the standards required for the bond designations.

“The projects that Stanford will finance with the bonds clearly support the advancement of health equity, improve access to housing in an undersupplied market and sustain the entire University’s diversity and equity goals. They also enable Stanford’s growth while reducing GHG emissions at a rate that exceeds internationally recognized climate action goals,” said Kestrel CEO Monica Reid. “Stanford is exemplary in its leadership on comprehensive emissions tracking and reductions for a higher education and research institution.”

University Treasurer Karen Kearney, whose office initiated and led the financing, said obtaining the designations added complexity to the process, since Stanford elected to, for example, obtain external ESG certification of its offering by an approved verifier. Bank of America led the team of underwriters handling the sale. It included Wells Fargo, Morgan Stanley and Siebert, Williams, Shank & Co, an Oakland-based woman- and minority-owned firm.

“This market evolution, together with a review of the annual Sustainability at Stanford report was a lightbulb moment for me,” Kearney said. “We had been contemplating green bonds for some time, and now we could identify a discernable pricing advantage by associating a bond issue with Stanford’s longstanding emphasis on the environment, access to education and social responsibility. Seeking ESG designations promised both financial advantages and the opportunity to extend Stanford’s environmental and social stewardship into the financing domain.”

Ongoing efforts across campus

For the environmental sustainability requirements, Stanford demonstrated efforts both for buildings and infrastructure and in broader policies and plans that together accelerate the university’s transition to net-zero greenhouse gas emissions by 2050.

Among these initiatives are a new school that will focus on climate and sustainability and Sustainable Stanford, which leads the university-wide effort to reduce environmental impact, preserve resources and lead sustainability by example. It also administers the My Cardinal Green sustainability incentive program and provides visibility into these efforts through reporting of metrics.

For the social responsibility designation, Stanford noted the cross-campus IDEAL (Inclusion, Diversity, Equity, Access in a Learning Environment) among a range of initiatives aimed at improving diversity, equity and inclusion. The initiatives advance affordable on- and off-campus housing; healthcare access for marginalized populations in the United States and internationally; and increase diversity and opportunities for medical students and healthcare professionals.

Provost Persis Drell, the university’s chief academic officer and chief budgetary officer, said the bond issue shows the added value that social responsibility initiatives can create.

“Diversity is essential to advancing Stanford’s mission in a rapidly changing world. Our community is stronger when our students, faculty, staff and postdoctoral scholars reflect an inclusive society,” said Drell, who oversees IDEAL. “That imperative requires an ongoing commitment and investment across the board, in the people we bring to campus, the initiatives that support them and the spaces where they learn, work and live.”