Canada now has the world’s fifth-largest “climate-aligned” bond market, at C$32.9 billion, and the availability of both climate-aligned and “labelled green bonds” has grown in the last year, according to the fifth edition of the Climate Bonds Initiative’s annual State of the Market report, published by Ottawa-based Sustainable Prosperity.

Over the last five years, “the green bonds market has grown from a small, US$2-billion niche market to a US$120-billion market and a key talking point at the G20,” the report states. “Our global report estimates that there is a universe of over US$694 billion of bonds financing clean projects, of which US$118 billion are labelled as green and the remaining US$576 billion are not labelled. Together, the labelled and unlabelled bonds comprise our ‘climate-aligned’ bond universe.”

Canada “makes up 3.9% of that universe,” a total that represents a year-over-year increase for both climate-aligned and labelled green bonds. “With second issuances from EDC [the federal Export Development Corporation] and Ontario, and strong signals from the new federal government, 2016 may prove to be the year in which the Canadian policy and financial communities realize the potential of green bonds.”

While there has been no shortage of demand for green bonds since they first made their appearance in Canada in 2014, the CBI cites four barriers to market growth: Lack of familiarity among bond issuers, slightly higher transaction costs, limited federal and provincial and non-existent municipal leadership, and a lack of standards and certifications. But with international trends pointing toward higher demand for green investment, “Canada has the opportunity to harness this private capital investment that is critical to achieving [its] economic and environmental goals, as public funding alone will be insufficient.”