Ontario has announced that it intends to issue green bonds for the purpose of investing in “environmentally-friendly” infrastructure. Sustainable Prosperity anticipated this kind of market activity in its recent report on green bonds in Canada. Ontario’s announcement is a potentially very useful and significant development in the effort to finance the transition to a greener, more competitive economy.

Green bonds, to remind the reader, are essentially IOUs issued by governments (or companies) to help fund projects or activities that are priorities. What makes them green, crucially, is that there is a direct and transparent link (when the system is working as it should) between the money raised through a bond issuance and the underlying environmental benefits of the activity or project it is funding. In other word, the money that a green bond raises is spent on green activities or projects. To make sure that is the case, a lot of what Ontario now has to do is to set up the systems and standards to certify that such a link exists. Failing to do so will have not only for the bonds viability, but also for the province’s credibility.

The payoff, at least, could potentially be large. With what is known about the sizable demand for such instruments (estimated by the Council for Clean Capitalism at $22 trillion), the province expects to garner substantial interest for the bonds, and therefore to be in a position to offer very attractive rates for them (meaning lower interest rates, and lower service costs for Ontarians). Ontario, as the first jurisdiction in Canada to offer such a bond, will also bring to the table its very attractive credit rating, which will create even more confidence in the product. It’s a good bet, too, that if Ontario’s proposed offering goes well, the ensuing market interest and confidence will create copycats from companies and public authorities that have been waiting to dip their toes in this green water.

We need to see much more in the way of details for this to offer up any more substantive conclusions. But stepping back from this particular offering, what we are seeing here for the first time (again, in North America) is a government that is broadcasting its intention to use the full array of financial tools it has at its disposal to invest in sustainable infrastructure. If that intention becomes reality, then it is very good news…