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Royal Bank is issuing a five-year green bond, which will primarily fund renewable energy projects and sustainable buildings.Fred Lum/The Globe and Mail

Royal Bank of Canada is issuing its first-ever green bond, a €500-million ($752-million) five-year debt offering that will primarily be used to fund renewable-energy projects and sustainable buildings.

The proceeds of the bond can also be used to fund organizations and projects focused on clean transportation, reducing pollution, sustainable water and wastewater management, energy efficiency and environmentally sustainable management of natural resources and land.

The corporate banking loans funded by the bonds will count toward RBC’s goal of reaching $100-billion in sustainable financing by 2025. Toronto-Dominion Bank has also pledged to put $100-billion toward sustainable finance over the coming years.

RBC’s inaugural green bond comes amid growth in the volume of Canadian debt offerings aimed at facilitating the shift to a low-carbon economy. Driven by demand from institutional investors, Canada’s market for green bonds – which are sold to finance environmentally friendly projects such as wind and solar power, energy-efficient buildings or clean transportation – has grown 385 per cent since 2016, hitting a record high of $6.3-billion in 2018, according to RBC.

Institutional investors such as Canadian pension funds have become vocal proponents of the importance of weighing environmental, social and governance factors when making investment decisions.

RBC’s green-bond issuance comes after the bank published its green-bond framework last week. The investor base for the bond is primarily European, the bank said.

“Our participation in the green bond market helps RBC deliver on our coordinated, enterprise-wide approach to accelerate clean economic growth and transition to environmental sustainability,” Valerie Chort, RBC’s vice-president of corporate citizenship, said in a statement.

Sun Life Financial Inc. also recently published a sustainable-bond framework, although the insurer has yet to issue its own green bond.

As the market for green bonds expands, both in Canada and internationally, the variety of issuers is also increasing. Until recently, the Canadian market for sustainable bonds was dominated by the public sector, including various levels of government and pension funds. But, as The Globe and Mail reported earlier this week, a number of new entities – including Algonquin Power & Utilities Corp. and Concordia University – have entered the space this year, and that trend is likely to accelerate.

Over all, global issuance volume in the green-bond market is expected to gain momentum this year after slower growth in 2018, according to a green-bond report published by RBC on Wednesday.

Factors contributing to growing interest in sustainable bonds include demand from investors, various government initiatives aimed at addressing climate change and the emergence of global standards for defining what is “green,” the bank said. The entrance of new issuers and the growing number of repeat green-bond issuers will also likely play a role.

Estimates for global green-bond issuance in 2019 range from US$180-billion to US$250-billion, according to the report. So far, 2019 has seen US$48.3-billion of green-bond issuance globally.

In Canada, $2.6-billion worth of green bonds has been issued so far this year, bringing the total issuance to date to $14.2-billion. The biggest of Canada’s 15 green-bond issuers is the province of Ontario at $4-billion.

“We continue to believe growth in green bond issuance will be supported by the federal government’s aggressive green agenda, despite what appears to be growing criticism of environmental policies – especially around election time,” the report said.

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