Green Bonds: Back in the News

Green bonds are back in the news. On January 23rd, squeezing its way through the news maelstrom provided by first Justin Bieber (in jail!) and Rob Ford (in an elevator!), came news of a green bond issue by Export Development Canada.

In its press release, the export financing agency of the federal government, announced: “EDC’s Green Bond program is an area where the interests of investors and EDC converge, one that we’re looking to develop and grow into a regular part of our funding program”. Investor interest was very high, and in fact, EDC received US$300 million in orders within the first 15 mins of the issue, and stopped at when it had reached US$500 million. That investor response is something that market analysts have now come to expect with green bond issues, especially ones backed by the AAA credit rating of public agencies. EDC has indicated that it intends to issue green bonds at least once a year from now on.

The funds raised by EDC will be put in a dedicated fund targeting investments in specified environmental activities, including waste management, remediation and soil treatment, recycling, water management, sustainable forest and agricultural management, renewable and bio-energy, public transport, etc. The projects for which green bond financing is provided will be subjects to standard agreements which will ensure consistency with the EDC’s green bonds framework. That framework was developed with the Norway-based Centre for International Climate and Environmental Research (CICERO), and follows frameworks developed by international financial institutions like the World Bank.

The EDC announcement comes on the heels of Ontario’s announcement as part of its Fall Economic Update that the province would look to issue green bonds within a year to fund environmental infrastructure in the province.

The EDC green bond issue comes at a time of great growth in the green bonds sector, which has been described in Sustainable Prosperity’s recent report on the topic. A recent announcement pointed to a record 2012, with US$ 10 billion in issues. And World Bank President Jim Kim, speaking at the World Economic Forum, has issued a challenge to double that amount by the time a high-level meeting on climate change convenes at the United Nations this September.

With that kind of growth, the days of green bond “firsts” are growing shorter and shorter. The one spot still left open in Canada – after a public agency issue and a government issue – is for one of Canada’s Big 5 chartered banks to enter the fray with their own offering. A few years ago, such a thing would have been hard to imagine. It now seems like an inevitability