Green bonds get push from report
If timing is everything, then the University of Ottawa-based Smart Prosperity Institute and London-based Climate Bonds Initiative have done well.
On Thursday, the two are set to publish the State of the Market report, a schedule that puts it in about the middle of the Bonn climate change conference.
The report gave the Government of Canada a shot at a way of accelerating the growth of the green bond market: it advised Ottawa to issue a sovereign bond that would provide “the scale and liquidity” the nascent green bond market needs “to encourage trading and facilitate price discovery.”
If Ottawa follows that advice it would be the fourth country to tap a market that’s seen almost US$ 100 billion of issuance this year: Poland, which raised €750m last December; France, which raised € 7 billion in February; and Fiji, which raised US$ 50 million last month, have been there.
The report argued that a Canadian sovereign green bond issue would provide “a signal to market participants, raising the profile … and open up the market to new investors with portfolios allocated to sovereign debt.”
But the report — issued at a time when green bond issuance this year by Canadian entities is equal to the total previous issuance — sees a glimmer of hope in the recently formed Canada Infrastructure Bank. In addition, it noted the Minister of Infrastructure has received a mandate letter directive to work on the launch of a Canadian green bond.
“Sovereign green bonds could help harness much needed private capital as public funds alone will be insufficient to achieve Canada’s climate goals,” said the report, which argues for provinces, other than existing issuers Ontario and Quebec, and cities, other than Ottawa, to come to the market. The report also advocates for publicly owned entities “such as water and electric utilities” to issue green bonds.
Ontario, which has been to t he green market on three occasions, intends to return. In prepared remarks, Gadi Mayman, chief executive of the Ontario Financing Authority, said Wednesday that Ontario plans to launch its fourth green bond “before the end of fiscal 2017-18.”
The report indicates the supranationals — the World Bank and a slew of development banks — are the big players, having issued more than US $50 billion( or about one quarter of total issuance) of such bonds over 10 years. Entities from the U.S ., China, France, Germany and the Netherlands are the next five largest issuers. Over the same period, Canada has been the 10thlargest green bond borrower.
So far in 2017, $ 3.8 billion of green bond borrowings have been raised by Canadian entities, with TD Bank’s US$ 1 billion being the largest. Most end up with institutional investors ( on the City of Ottawa’s $ 102- million deal, for example, 96 per cent was allocated either to investors with green mandates or investors who had signed the UN’s Principles for Responsible Investing.)
But one firm, Co-Power Inc ., an exempt market dealer, offers green bonds to retail investors. The green bonds it issues — and it’s in the market now with a $ 20- million offering, of which more than $ 6 million has been raised — are backed by portfolios of clean energy project loans. So far it has made $ 14 million of investments.
But the report says there is no reason to rest because issuers, when they bring forward a transaction, stand to receive a warm reception. In short, demand from investors both with and without green mandates is typically very strong.
On Ottawa’s borrowing, demand was 2.7 times what was available.
SET TO PUBLISH THE STATE OF THE MARKET REPORT.