TMX Group Ltd. , the parent company of the Toronto Stock Exchange, is launching a trading platform for sustainable bonds, giving retail investors the rare chance to buy and sell ESG-friendly debt while offering issuers a new source of capital to help Canada transition to a low-carbon economy.
For years, debt markets have been dominated by institutional investors who buy and sell bonds over-the-counter – that is, through investment banks in an opaque marketplace.
TMX’s new trading venue, which goes live Monday, allows retail investors to trade sustainable debt. Practically speaking, it means ordinary investors can trade qualifying bonds just like they would stocks, or purchase them and hold the debt until it matures.
Beyond Canada’s borders, Nasdaq runs a Sustainable Bond Network, which is targeted to institutional investors and lists qualified sustainable bonds. TMX’s platform allows the debt to be bought and sold through online brokerages or through an investment adviser.
The goal of the Canadian project is twofold, said Rob Catani, a former bond trader who now works for TMX: to help investors who are increasingly conscious of environmental, social and governance principles access ESG-focused debt, and to create a new funding source for the issuers of sustainable bonds.
Sustainable bonds encompass three categories of debt: green bonds, which provide environmental benefits; social bonds, which create a positive social outcome in the near future; and transition bonds, which help organizations move to a lower carbon future.
To start, the TMX project offers $13-billion worth of green bonds from eight issuers, but the company has plans to expand the venue. “It’s only going to grow,” Mr. Catani said. TMX has signed on National Bank Financial and TD Securities to serve as market makers for all bonds on the platform.
The debt currently available for purchase has coupons ranging from 0.75 per cent to 3.25 per cent, and the maturities range from 2022 to 2051.
Green bonds have existed for years, but in their infancy they were little more than regular debt that was marketed in a special fashion. More recently, the ESG movement has created a framework to make them distinct from ordinary debt.
For one, their use of proceeds has been made transparent, and the money can only be put toward green projects. The bonds are also required to have a second opinion that is issued by a recognized independent third party.
Proceeds from the bonds issued by the province of Quebec that trade on the platform, for instance, can only be used for specific projects that generate tangible benefits for protecting the environment, reducing greenhouse gas emissions or adapting to climate change in Quebec.
Currently, the bonds available for purchase on TMX’s new platform are issued by governments or supranational agencies, such as the Asian Development Bank. The goal is to add corporate bonds in the future.
“We’re expecting more issuers to join as this market develops,” said Sean St. John, an executive vice-president at NBF, adding that the bank believes there are multiple benefits to the project. “We see this as supporting our clients [debt issuers] with another source of capital, supporting retail by proving better access and transparency as well as furthering our commitment to the growing ESG market.”
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