UP Debuts Green Bond Funding

UP’s Green Financing Framework outlines the projects that can be funded with proceeds from its green bond offering. Among them: locomotive modernizations that reduce GHG emissions and increase fuel efficiency. (Photograph Courtesy of UP)

Union Pacific has issued $600 million of green bonds to “fund investments aimed at decarbonizing the company’s footprint and achieving set emissions reduction targets,” the Class I reported Sept. 12.

The bond transaction, finalized Sept. 9, is said to underscore UP’s commitment to achieving its climate-action goals. The Class I railroad in February 2021 announced its target “to reduce absolute Scope 1 and 2 GHG [greenhouse gas] emissions and GHG emissions on a well-to-wheel basis from locomotive operations 26% by 2030 from a 2018 baseline.”

Projects that can be funded with proceeds from UP’s green bond offering are outlined in its Green Financing Framework (download below).

Among them:

• New battery-electric locomotives. UP in January announced plans to purchase 20 such locomotives for testing in yard operations. “For every 10 battery-electric locomotives used, approximately 4,000 tons of carbon will be eliminated annually, the equivalent of removing 800 cars from the highway,” UP noted in its Green Financing Framework. “The first units arrive in late 2023 with complete delivery by late 2024. They will immediately be put to work in rail yards in California and Nebraska where they will be tested for performance in cold and warm weather.”
• Locomotive modernizations that reduce GHG emissions and increase fuel efficiency.
• Expansion of intermodal facilities, “which can promote modal shift of freight to lower-carbon alternatives such as rail,” according to the Class I railroad.
• New sidings and siding extensions, “which increase train length and reduce dwell time,” the railroad noted.
• Investment in and/or development of onsite or offsite generation and distribution of renewable energy from solar or wind sources.

“Eligible Green Projects will include expenditures disbursed up to 24 months prior to the applicable Green Financing,” according to UP, which noted that infrastructure and rolling stock for rail lines dedicated to the transportation of fossil fuels do not qualify for proceeds from the green bonds. “It is our intention to fully allocate an amount equal to the net proceeds of each Green Financing within 36 months of its issuance.”  

“When it comes to finding ways to decarbonize our footprint, every idea is on the table,” UP Chairman, President and CEO Lance Fritz said. “We are acting now on our most promising avenues to make progress toward reducing greenhouse gas emissions and investing in technology to support future initiatives.”

“Investor interest in our green bond offering was high and represented a strong vote of confidence in support of our sustainability efforts as we continue to recognize our role in reducing climate impacts when and where we can,” UP Vice President and Treasurer-Finance Mike Miller said.

In related developments, Norfolk Southern in May 2021 issued $500 million of green bonds.