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Canada’s First Green Bond Raises $5B, Leaves Investors Wanting More

Canada’s first-ever green bond raised $5 billion for environmentally focused projects this Tuesday, after a week-long issuance period that showed investors willing to buy more than twice the value of assets on offer.

“The deal arrangers accumulated orders for more C$11 billion for the $5-billion transaction by the time it priced,” with a total of 98 investors buying in, Bloomberg reports. The total was even higher, at $12.3 billion, before Canada cut the yield investors could count on when the bond comes due in June 2029.

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In the end, CBC writes, the bond will pay 2.25% per year over the next 7½ years. “That yield is about 0.02 percentage points lower than what regular government debt of a similar time frame is offering, which means holders of the debt are willing to get a slightly worse deal on their return because of the environmental benefits of the investment,” the national broadcaster adds.

“During the time I was an environmental activist, you had to convince people to pay attention to climate change,” Environment and Climate Minister Steven Guilbeault said Wednesday. “Those days are pretty much over. Today’s announcement is proof that an economic win is an environmental win.”

The green bond was an “important first step for the government to develop a liquid green bond program,” said Trevor Bateman, head of credit research at CIBC Asset Management. “It may provide Canada the opportunity to attract new [Environmental, Social, and Governance]-focused investors that might not have invested historically.”

“We knew the order book would be huge,” added Vancouver-based bond manager Ryan Goulding, who landed some of the bonds for his clients. “If anything, I would have expected more international buyers,” since “the ESG mandates are really dominated out of Europe,”

A release from the federal finance department lists nine types of investment that will be eligible for green bond funds: clean transportation; living natural resources and land use; energy efficiency; terrestrial and aquatic biodiversity; renewable energy; climate change adaptation; sustainable water and wastewater management; pollution prevention and control; and “circular economy adapted products, production, technologies and processes”. Those criteria put the Canadian bond in step with practices in France, Germany, Sweden, Spain, Italy, and the United Kingdom, the release says.

The bond criteria exclude investments in fossil fuel transportation, exploration, and production, and in nuclear technology, Bloomberg writes.

“The global market for green bonds has grown rapidly in recent years, as investors have begun demanding assets that align with ESG goals, and governments have looked for ways to fund renewable energy and emissions-reducing infrastructure projects at a lower cost,” the Globe and Mail wrote in a backgrounder earlier in the week. “While Canada has lagged its peers in terms of federal government green bond issuance, the broader market for sustainable debt has expanded quickly in the country,” with the value of green bonds from all sources rising from US$8 to US$14 billion between 2020 and 2021.