Yesterday the Canadian supplement to the Bonds and Climate Change report was launched by Sean Kidney with a speech at the Economic Club of Canada. The supplement is published in partnership with Sustainable Prosperity
Report Highlights:
- Canadian universe = C$5.7bn out of a global total of $346bn.
- Canadian bonds were issued in three themes: Transport (68% of total), Energy (28%) and Agriculture & Forestry (4%)
- The universe includes 3 Canadian renewable energy project bonds - all BBB rated
- 83% of Canadian bonds is investment grade and with bonds sizes larger than $100m
Sustainable Prosperity is a Canadian a national research and policy network at the University of Ottawa and focused on market-based approaches to build a greener economy, provided context and analysis for the report's Canada supplement.
Alex Wood, Senior Director of Policy and Markets at Sustainable Prosperity says the issuance of the three BBB-rated investment grade project bonds in Canada indicates a new level of maturity in the market. "Up to now, the U.S. has been the major player in the project bond space, so these three issuances represent what could be the start of an important new direction for green bonds in Canada," says Wood.
The three issuances were:
- Brookfield Renewable Energy Partners' $440 million offering for its Comber Wind farm in Essex County, Ontario.
- Enerfin Energy Company of Canada's $243 million senior secured construction and term loan facility for its L'Érable Wind Farm project in Québec.
- First Solar Energy's $172 million bond for its solar photovoltaic project in St. Clair, Ontario
Climate Bonds Initiative CEO, Sean Kidney noted that "Demand is strongest in the A and above investment grade, reflecting the requirements of the types of investors that are members of the USD21 trillion of institutional investors aligned with the new Global Investor Coalition on Climate Change." 83% of the Canadian bond universe is investment grade, which mirrors the global universe where 89% is investment grade.
Looking ahead, one of the biggest immediate issues for the expansion of the Canadian and global market of a green bond market are issuance scale, liquidity and monitoring. A larger number of bigger green bond issuances are needed, especially for renewable energy and other corporate green bonds. A liquid green bond market requires at least US$200 - US$300 billion, made up of bonds rated BBB or higher.
In Canada, it is likely that the next areas of growth will be hydro and government related issuers, where there are a lot of existing opportunities to create investment grade green bonds.
A major driver of interest in this space could also stem from increasing attention on Canada’s “infrastructure gap”. In particular, after severe flooding in Toronto and Calgary this past summer, strong interest is expected in climate-resilient infrastructure that may spur more market activity.
Download the supplement here
For more information watch this news report (starting at 33 mins).
