Many huge, costly infrastructure projects are often partly funded by bonds, a financial instrument used by borrowers to raise funding from a variety of investors willing to lend them money over a period of years, or even decades.

In 2013, the European Investment Bank (EIB) and World Bank launched the first green bonds (also known as climate bonds) to fund projects that have positive environmental and climate benefits. Although the green bond market was initially viewed as niche, the concept has proliferated and green bonds are rapidly becoming mainstream.

The Climate Bond Initiative estimates that the total amount of green bonds issued this year could reach $150bn, a 38% year-on-year increase compared to 2016. Last year, transport projects accounted for 16% of green bonds issued.

Credit rating agencies such as as S&P Global Ratings and Moody’s have developed new frameworks tasked with evaluating a project’s green credentials under a specific framework. Those projects with a favourable evaluation may benefit from a global pool of £22 trillion from investors who are members of the Global Investor Coalition on Climate Change and place importance on how their investment affects the environment.

Last year, the Mexico City New International Airport became the first airport in the world to be partly financed by green bonds. Now, the Orlando International Airport has also been awarded a a high score on S&P Global Ratings Green Evaluation for its ongoing works on the new South Terminal Complex project.

To achieve this, both the Mexico City Airport Trust and the Greater Orlando Aviation Authority have put forward extensive environmental mitigation plans for their future terminals, complete with the promise of a transparent recording and governance record of the airports’ operations over time.

But one question arises: are airports suitable for green bond schemes, considering they are part of one of the biggest polluting industries in the world?

According to the David Suzuki Foundation, the aviation industry accounts for between 4% and 9% of the total climate change impact of human activity. Not only this, but airports themselves are a source of considerable GHG emissions, harmful air pollutants, water pollution and contribute to a loss of agricultural land through their daily operations.

Mexico City Airport’s groundbreaking feat

The Mexico City New International Airport (NAICM) is the second largest airport under construction worldwide, and one of the most important infrastructure projects undertaken in Mexico in recent decades.

The first phase of the project is scheduled to be completed in 2020, with capacity to support over 50 million passengers, and upon the completion, the 5,000-hectare airport is expected to welcome 125 million passengers.

From the beginning, NAICM aimed to “redefine the way major infrastructure projects are developed in Mexico” by becoming “a global reference in airport design, construction and sustainable operation”. It is on track to become the first airport in the world to achieve LEED Platinum certification, the highest rating for green buildings available. A LEED certified airport means that it will ensure a 70% reduction in potable water consumption compared to traditional airports, a 50% energy consumption reduction when compared to the current airport, and 75% of the waste materials generated during construction will be reused.

“NAICM aims to become a global reference in airport design”

Once built, the airport’s goal will be to operate with 100% renewable energy and achieve reductions of 30% in water and 40% in energy consumption compared to the existing airport. This will be achieved with help from solar power systems, which will generate 50MW of peak power, or approximately 9% of the airport’s total energy consumption. The construction project also includes various water treatment and management facilities and systems, with a final objective that 70% of the water consumed in the airport will come from on-site water and wastewater management projects.

Design firm Foster + Partners specify that for a large part of the year, temperatures will be maintained by almost 100% outside air, with little or no additional heating or cooling required. Furthermore, the entire terminal building will be serviced from beneath, freeing the roof of ducts and pipes and leaving it to harness the power of the sun, collect rainwater and provide shading.

“Although there will be significant GHG emissions from the construction of the new airport, [Grupo Aeroportuario de la Ciudad de México] has taken a number of steps to mitigate the negative environmental impacts of the airport construction,” concluded a report by environmental and corporate governance research firm Sustainalytics, who was consulted for a second opinion. The firm deemed NAICM’s Green Bond Framework “credible and impactful”.

Orlando Airport follows suit

In the US, Orlando International Airport (MCO) is currently undergoing works to build the South Terminal Complex (STC), a $1.8bn expansion project to increase the airport’s capacity up to 40 million passengers. The project also includes three rail systems, which will be used to transport passengers between terminals.

In August, Greater Orlando Aviation Authority (GOAA) issued nearly $1bn in bonds to fund the costs of five new buildings and several adjacent projects. While these bonds will not be labelled green, they are eligible for a Green Evaluation – a newly launched S&P service, which differs from traditional credit ratings, but looks at initiatives focused on renewable energy, green transportation or environmentally compliant buildings, among others.

The STC project aims to be compliant with LEED Certified ranking, the lowest out of the four available, but plans for the future terminal fall in line with GOAA’s nine key sustainability initiatives. These include sustainable construction, engineering and design practices, a reduction in water consumption and energy use, as well as a reduction in solid waste going to landfills.

However, Orlando’s bonds achieved a score of 44/100 for Transparency. This is because the authority did not commit to publicly disclose and regularly report on the project’s environmental impacts and potential savings.

Should airport projects be labelled ‘green’?

Are these efforts enough to class airport expansion projects as ‘green’? And why would environmentally conscious investors direct their money towards one of the most polluting industries in the world?

Airports generate air pollution in a variety of ways: combustion and dumping of aviation fuel; friction of aircraft tyres during take-off and landing; aircraft and airfield maintenance chemicals; and GHG emissions caused by the use of heat and electricity by terminal buildings, airport vehicles and ground support equipment

The largest study of health impacts at airports, carried out for the Dutch Government and published in 1999, revealed that the levels of pollution observed around airports can lead to an increased mortality rate and higher frequency of hospital admissions. And it’s not only the people living close to airports who are affected – everybody is to some extent exposed to air traffic-related secondary pollution.

The Mexican Government revealed that, once operational, the New Mexico City Airport expects an increase in car traffic of 84% compared to traffic levels caused by the current airport. In 2014, senator Alejandro Encinas Rodríguez called the proposal to build it an “ecological suicide and a threat to urban development”. One year later, the government provided almost $50m towards mitigation measures.

“New Mexico City Airport expects an increase in car traffic of 84% compared to traffic levels caused by the current airport.”

Similarly, the redevelopment of Orlando’s East Airfield site, where STC is to be located, will see over 4,600 metric tons of CO2 emitted over the five-year construction period, according to an environmental impact statement. Expected operational emissions were not disclosed in the document.

Regardless, multiple assessments found that the two airports have made sufficient efforts to mitigate their footprint. It can be argued that an airport’s sustainability efforts should be taken into a wider context; although they are part and parcel of a heavily pollutant industry, efforts to minimise their impacts are surely welcome, and should be supported.

So far, the green bond market is still immature, despite its rapid growth in recent years, so the financial advantages over traditional ‘vanilla’ bonds are not yet clear. However, recent analysis from the Climate Bonds Initiative suggests that higher demand for green bonds can spell a better deal for issuers; they tend to attract a broader range of investors and outperform vanilla bonds in the primary stages.

If green bonds are indeed becoming an added incentive for airport authorities to aim high when planning an expansion, the two projects currently underway could be setting a worthy example.