Back in April, I wrote a post reflecting on the Federal Government’s most recent budget proposal and more specifically, the inclusion of social finance as a way of attracting and focusing private investment capital toward some of the big social challenges facing our country. Sometimes referred to as Impact Investing, Social Finance encompasses a suite of financial products investors are being offered that deliver solid returns socially, environmentally and financially.
Green Bonds fall into this category as a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects.
More specifically, Green Bonds have been used around the world to, “finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, clean water, and sustainable water management. They also finance the cultivation of environmentally friendly technologies and the mitigation of climate change.”
In last month’s federal budget proposal, the Canadian government committed to offering its very first Green Bond stating its desire to ensure Canada is competitive in a market where investors are increasingly looking to finance, “green projects that support innovative businesses and good jobs” as well as solid returns.
To be honest, Canada is arriving a little late to the Green Bond party.
Canada’s Responsible Investment Association summarizes the growth of the Green Bonds market in its publication Green Bonds: Fact Sheet for Investors: the World Bank issued the first green bond in 2008 and in the intervening years it has issued $13-billion USD equivalent through 150 transactions in 20 currencies. Export Development Canada (EDC)’s first Green Bond, issued in January 2014, “sold out in 15 minutes and was oversubscribed by $200 million.” Around the same time, Ontario became the first government in Canada to issue green bonds. The proceeds of Ontario’s first Green Bond were used, “to provide funding for transit and sustainable infrastructure projects”. Ontario has since gone on to increase the size of its green bond offering and when the Canada Pension Plan Investment Board recently issued its own green bond – it set records – being oversubscribed, by an estimated 80%.
Based on the federal budget document, we can expect to see a full green bond framework announced in the coming months, but the Feds envision, “an issuance target of $5 billion subject to market conditions”. The budget document also reveals that this framework is intended to support many green bond issuances going forward as part of Canada’s overall plan to fight climate change.
Canada’s National Observer, owned by Observer Media Group, itself a certified B Corporation, reported that “pressure from young activists sounding the alarm about the “climate crisis” has nudged green bonds out of the “niche market” and into the “mainstream.”
I believe success will ultimately depend on the appeal to market-driven investors, but if socially conscious investors are numerous enough, and willing to continue to be early adopters, there is nearly limitless potential for this investment vehicle to break into the mainstream.