green bond

Canada’s annual green bond issues could top $50-bil

Thursday, April 20, 2017

Canada’s capacity for green bond issues will be at minimum $56.3 billion in fiscal 2017/18, according to a recent report by Corporate Knights released at the RBC Capital Markets Green Bond Conference in Toronto on April 10. This figure is based on an analysis of the capital requirements, debt-raising capacity and intended uses of proceeds of 21 of the country’s largest public and private bond issuers.

“There’s clear momentum in green bond markets, but it’s still seen as a niche and perhaps even challenging financial tool,” said Toby Heaps, CEO of Corporate Knights, in a press release. “A billion dollars’ worth of bonds formally labelled as green are currently being issued in Canada annually. This analysis shows there’s potential for exponential growth.”

The analysis involved identifying the largest potential issuers with specific financing needs in the relevant timeframe, amenable to bond financing, and which would or could qualify as green. These findings were then cross-referenced with data on debt-raising capacity provided by RBC Capital Markets.

In 2017/18, the 21 potential bond issuers have the need and ability to fund $23.6 billion worth of “explicitly green projects,” such as public transit, renewable energy, and loans for electric vehicle purchases and green power projects. They have the further need and ability to fund $32.7 billion worth of “potentially green projects,” including energy-efficient construction or retrofitting of public buildings and installation of broadband.

Canada has seen a total of $4.5 billion in total green bond issues to date, including from the Ontario government in 2014 and 2017, and one this past February from the Quebec government, while the federal government has yet to make an issue. In a separate report released in early April, RBC Capital Markets found that a sufficiently liquid and effectively functioning domestic green bond market would need to increase up to $10 to $20 billion in size.

“Our assessment demonstrates that there’s more than enough potential for Canada to host a robust green bond market, to the benefit of both issuers and investors,” added Heaps. He went on to say that there are multiple sources of momentum at the moment, including the large infrastructure investments being made by many governments and the renewed commitment to climate action.

As part of the report, Corporate Knights also found that of the top 100 current infrastructure projects in Canada, identified as such by ReNew Canada, 56 of them would be green bond eligible.

Although green bonds can be widely applicable in private sector financing, Heaps says the government role will remain crucial in the early days of market development, through both continued public green bond issues and other support. “For a nominal investment, government could offset the additional transaction costs that green bond issuers incur,” he said. “And this would likely significantly lower the barrier to early adoption for some issuers.”

London, England-based Climate Bonds Initiative (CBI) recently calculated US$694 billion in outstanding bonds globally which are specifically being used to finance low-carbon and climate-resilient infrastructure. This figure is up US$96 billion compared to the year before.

“Green bonds are clearly on a strong global growth trajectory,” said Sean Kidney, CBI CEO and co-founder. “It remains to be seen which financial centres will emerge as the definitive centres of excellence in this area. But the research released today clearly shows that green bonds have the potential to become a much bigger part of Canadian capital markets.”

Issuer (figures in $billions) Explicitly Green
Potentially Green
Total Green Bond
Federal Government $3.40 $3.10 $6.50
Crown Corporations $0.36 $0.36
9 Largest Provinces $11.9 $22.63 $34.53
Telecom – Bell $3.88 $3.88
Telecom – Telus $2.90 $2.90
Utilities – Hydro One $1.52 $1.52
Utilities – Hydro-Québec $3.90 $3.90
Pension Plans – PSP Investments $0.98 $0.19 $1.17
Automotive – Toyota Credit Canada $0.13 $0.13
Banks – RBC $0.38 $0.38
Banks – CIBC $0.18 $0.18
Banks – Scotiabank $0.28 $0.28
Banks – National Bank of Canada $0.22 $0.22
Banks – BMO $0.35 $0.35
TOTALS $23.60 $32.70 $56.30

Bank figures are based on 2016 Bloomberg New Energy power asset financing data. Chart courtesy of Corporate Knights. Access the full report here.

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