Canada’s export credit agency is looking to capitalize on the growing trend for sustainable investing, launching a set of new financial tools aimed at supporting socially oriented businesses and helping large greenhouse gas emitters reduce their carbon footprint.
Export Development Canada has issued green bonds since 2014, using the proceeds to invest in public transportation and renewable energy projects.
On Monday, EDC laid out plans to issue two new thematic bonds. Alongside green bonds, the Crown corporation plans to sell “transition bonds,” whose proceeds will be earmarked for investments in carbon capture and alternative fuel technology. It will also issue “social bonds,” aimed at funding women- and minority-led businesses and building infrastructure in vulnerable communities.
EDC raises money in global financial markets, then lends to Canadian exporters and their international customers with the goal of boosting trade. It plans to issue the first $500-million worth of securities under the new sustainable bond framework this year.
The agency made the announcement a week after the federal government sold its first green bond, raising $5-billion in a deal that attracted more than $11-billion in orders.
“The enthusiasm and oversubscription to us is a sign that there’s a need in the market,” Justine Hendricks, EDC’s chief corporate sustainability officer, said of the federal green bond issuance.
The market for sustainable debt has grown rapidly in recent years, driven by large institutional investors – including asset managers such as BlackRock Inc. and Canadian pension plans – who are increasingly demanding assets that align with environmental, social and governance, or ESG, goals.
Meanwhile, governments and businesses are looking for ways to fund environmentally focused projects at a lower cost, benefiting from the “greenium” that investors are willing to pay for ESG assets.
There was US$14-billion worth of green bond sales in Canada in 2021, up from US$8-billion in 2020, according to Refinitiv.
EDC was early to the game in Canada, and has issued more than $2-billion worth of green bonds since 2014. The proceeds from these bonds have supported around 30 projects – mostly overseas renewable energy and transportation projects with Canadian owners or suppliers.
EDC’s new transition bonds differ from traditional green bonds. Rather than helping fund renewable energy projects, the proceeds will be earmarked for large emitters, such as oil and gas companies, who are trying to reduce their carbon footprint. Specifically, the transition bonds are allowed to finance investments in carbon capture, utilization and storage technology, and lower-carbon fuels, such as hydrogen and biofuels.
“They have to be in the process of changing,” Ms. Hendricks said of the companies that might be eligible for funding.
“Companies that would be considered for support would have to be aligned to the Paris Agreement in terms of their own activities and how they’re transitioning them,” she said.
By contrast, the federal government’s new green bonds cannot be used to finance any oil and gas projects, even initiatives aimed at lowering emissions. The government said these exclusions were done in light of “exclusionary criteria embedded in major green bond indices” and market expectations.
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Mark Rendell