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Streetwise Canadian green bond market expands with push to environmentally friendly projects

The Canadian green bond market is expanding as more companies are looking to raise money to fund environmentally friendly projects.

Until recently, Canadian green bonds – which allow issuers to raise money for environmentally sustainable ventures such as wind and solar power, energy-efficient buildings or clean transportation – have come predominantly from the public sector.

But some new companies have entered the space in 2019, and bankers say they expect the trend to continue, driven largely by institutional investors hungry for products to fulfill their sustainable investing mandates. That translates into new sources of fee revenue for the investment banks’ debt capital markets businesses.

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“I have a number of Canadian corporate [clients] that are looking at the market, and I think this year you’re going to see repeat borrowers ... as well as some new entrants," said Amy West, a director of debt capital markets as well as the head of sustainable finance at TD Securities.

In January, Algonquin Power & Utilities Corp. announced its first-ever green bond offering. Algonquin Power issued the $300-million unsecured bond, which has a 4.6-per-cent interest rate and matures on Jan. 29, 2029, to finance renewable power generation and clean-energy technologies.

And the following month, Concordia University issued a $25-million sustainable bond to fund the construction of a new, environmentally sustainable research facility. The 20-year senior unsecured bond, which bears an interest rate of 3.626 per cent, makes Concordia the first Canadian university to issue a green bond.

And if the global trend is any indication, green bond issuance by Canadian companies – and not just public-sector entities such as provincial governments, municipal governments and pension funds – could continue to grow.

Canada’s green bond market has grown 385 per cent since 2016, hitting a record high of $6.3-billion in 2018, according to the Royal Bank of Canada. So far, $2.6-billion worth of green bonds have been issued in 2019.

“It’s a trend which is gaining more and more traction," said Alex Caridia, head of government finance in the debt capital markets division of RBC.

Mr. Caridia attributes the growth to the fact that more institutional investors are adopting mandates for investing in environmentally sustainable and socially responsible companies and projects.

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“They’re spending more and more time thinking about it," Mr. Caridia said. "Some of them feel they need to do it because it’s their corporate responsibility. Others look at it from a value perspective – they feel that companies which behave a certain way will, over the long term, create more shareholder value.”

Last week, the RBC published its green bond framework – generally the first step a company takes before issuing environmentally friendly debt.

Proceeds from RBC’s green bonds will go exclusively to financing companies and projects that promote the transition to a low-carbon economy and that provide environmental sustainability benefits, according to the framework. That includes loans to finance renewable energy projects, clean transportation initiatives and the construction of green buildings, among others.

Insurer Sun Life Financial Inc. has also released a framework for a sustainable bond that has already generated buzz among investors, Ms. West said.

“They haven’t issued yet, but ... we’ve already had investors calling in asking to talk about it," she said.

“I think that having additional issuance, both from non-financial and financial [corporations], is going to be key," she added. "We’ve been sorely behind our peers in that regard, and I think it would be a huge boost to our market; investors would really welcome it.”

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