Hart House, the aged student centre at the University of Toronto, wasn't the most energy-efficient building on the block when David Berliner took over in 2009 as its sustainability co-ordinator. That it was musty, creaky and leaky was reflected in its energy bills. Berliner felt the university could save big bucks and reduce its carbon footprint by installing new windows and LED lighting fixtures throughout.
Then came the reality check. "There were tons of ways to save energy and money, but the biggest bottleneck we'd always come up against was the financing challenge," he recalls. The big banks weren't interested in loaning for such piddly projects, and countless other priorities were competing for scarce university dollars. What was missing, Berliner thought, was a way for the community to fund such an expense—not as a novel act of charity in the style of crowdfunding sites like Kickstarter, but as a serious investment with competitive returns in addition to green bragging rights.
Four years later, Berliner and business partner Raphael Bouskila filled this gap in the market, launching Montreal-based CoPower. The company seeks out community-scale clean energy projects and gives people an easy way to invest in them through the purchase of retail "green" bonds. In essence, they have created an online marketplace for direct investing in clean energy projects.
"The biggest tool we have in our arsenal against climate change and shift to a low-carbon economy is our individual and collective portfolios," says Berliner, 29, CoPower's CEO. "We see a future where there are many projects getting directly funded by people across the country. There is an opportunity here worth billions of dollars."
CoPower built, fine-tuned and tested its online platform with accredited investors, who to date have put nearly $7 million into private debt funds managed by CoPower. Earlier this year, most Canadian securities regulators introduced a rule change that allowed CoPower to broaden its offering to retail investors. Thus, in February, CoPower launched its first public green bonds, which raised $300,000 to refinance loans for a large rooftop solar project in Windsor, Ontario, and energy-efficiency upgrades at Toronto's Harbourfront Centre.
Investors scooped them up in less than three weeks. That they were sold as "green" may be only part of the attraction: The five-year bonds offer a 5% annual return. This while typical corporate bond yields are between 1% and 3%. The CoPower bonds are also RRSP-eligible. (A similar offering is available from small non-profit co-operatives like Ontario's SolarShare.)
Trish Nixon, CoPower's director of investments, says the high yield reflects the lack of financing options available to small projects. At the same time, the company mitigates investor risk by tying loans to completed projects that are being refinanced. Those projects must be earning enough revenues or energy savings to pay back bondholders, with interest, and cover CoPower's fees. "Bondholders don't assume construction risks," says Nixon, who is the daughter of Gord Nixon, former CEO of Royal Bank of Canada.
RBC, coincidentally, co-led an $850,000 round of seed financing in CoPower last October. "We liked that the platform approach means the company can decrease transactional costs while increasing project volume," says Sandra Odendahl, senior director of social innovation at the bank. "It could enable investment advisers to offer easy access to renewable energy investments to their clients."
Interest in green bonds is rising. The worldwide market has grown from $1 billion (U.S.) issued in 2009 to $42 billion in 2015. That's expected to double to $100 billion this year, according to the Climate Bonds Initiative. Toyota, for example, issued $1.6 billion (U.S.) this spring to help its customers purchase or lease its hybrid vehicles. Ontario, the first Canadian province to issue green bonds, has raised $1.25 billion to help fund transit initiatives.
Only institutional investors can buy into those large issues, but the retail appetite is strong. Canada's Responsible Investment Association reported in April that millennials—a massive demographic representing 18- to 34-year-olds—are twice as likely as baby boomers to tie their investments to companies or projects that solve social and environmental problems, such as climate change.
"There are people actively Googling how to do responsible investing, and that's growing every day, boosted by seeing news that the Rockefeller Foundation and others are divesting from oil," Berliner says. In the same vein, Bank of England governor Mark Carney is talking openly about the climate risks hidden within portfolios and the danger this poses to global financial stability. "This all brings legitimacy to the idea that you can invest to benefit your portfolio and the climate." CoPower's research into its pool of current and potential investors shows that about 40% are millennials, and about 25% retirees. Two-thirds are men. Most are tired of the opaqueness of mutual funds and want more control over what their money supports, says Tim Nash, a Toronto financial planner who "coaches" individuals on green investing. Nash says people are comforted by the fact that the CoPower bond, with its fixed annual return, isn't tied to the vagaries of the stock and bond markets. Still, he adds, there are liquidity risks to consider. "It's not suitable for clients who need to access their money within that five-year term window."
CoPower's next retail bond issue will likely be this fall. Berliner wants the company to achieve scale and have impact, but the soft-spoken executive is cautious not to promise too much, too soon. Vetting projects takes time, and many fail to meet the company's criteria. When projects are selected, considerable time is spent on due diligence. "One of the best pieces of advice we got was to crawl, walk, then run. Otherwise, you risk falling on your face," he says. "We want to build a brand that people trust. Our goal is to mainstream the approach."