Ottawa first city to issue green bonds

Proceeds to finance building light-rail transit

The City of Ottawa has become the first municipality in the country to issue a green bond.

This week the city, that’s home to almost one million people, priced a 30- year offering of 3.25-per-cent notes. Given that the notes were priced at a slight discount, the yield to maturity at issue was 3.259 per cent.

And in what is believed to be a first, Ottawa, which intends to use the proceeds from the offering to finance light-rail transit capital work that meets the requirements of its Green Bond Framework, has achieved another breakthrough: its cost of f unding was l ower than what a comparable 30- year non-green bond issue would have cost.

The issue received strong demand with orders at least twice what was on offer.

Mark Martin, manager of treasury for Ottawa, said the green bond issue’s success arose from a number of factors.

It got assistance from: the province of Ontario, which has completed three green bond issues; from Export Development Canada, another frequent issuer; from investment bankers “because they are getting requests for such issuance”; and from investors, “which started to call” and express interest to buy green bonds.

Once all those factors were assessed “it became evident there’s no supply,” said Martin, adding that “it’s great to be green. Green investing is here.”

Martin added that since the offering was priced, his office has received numerous phone calls from other Ontario municipalities and from cities in British Columbia.

One year back, Ottawa launched the process that ended this week when it priced its inaugural green bond.

As for the pricing, Martin said that the issue was priced at 22 basis points above comparable Ontario bonds, or two basis points below the indicated marketing range.

“The market is saying we are two basis points through our brown level. It’s a big success.”

The city ’s green bond framework says that debentures are green if they are used to finance capital projects that promote environmental sustainability, all part an effort to mitigate and adapt to the effects of climate change, reduce greenhouse- gas emissions and promote the transition to a low carbon economy. Eight types of projects are eligible to be deemed green.

The greenness of the issue was assessed by two entities. First, the City of Ottawa itself determined that it was green and in line with the level of disclosure expected by the International Capital Markets Association’s green bond principles. Those four principles relate to the selection process, the use of proceeds, the management of fund ( the proceeds are not fungible with other revenue streams Ottawa receives but are to be kept secret) and the reporting to the stakeholders.

On this deal, which took about a year of preparation, the reporting is more extensive because the lightrail transport project is a public- private partnership. Martin said the project that is receiving funding from all three levels of government is the largest project in the city’s history. The Rideau Canal, built in 1832, held the previous record.

And Ottawa went the extra mile to ensure the bond offering, co- l ed by RBC Capital Markets and TD Securities, was deemed to be green. It got a second opinion: Sustainalytics, which defines itself as “a global leader in ESG and corporate governance research and ratings,” gave a similar opinion.

It’s 19- page report, Sustainalytics said it “is of the view” that Ottawa has “a clear and transparent process for project evaluation and selection.”

And for good measure, it added that it “is of the view” that Ottawa’s green debenture framework “is robust and credible.”