Green Bonds: An Investment To Write Home About

smartmoney_600In an encouraging move for those of us who track market-based mechanisms for financing the clean energy future, the Premier of Ontario this week said that, in the coming year, her province will be the first Canadian jurisdiction to issue “green bonds.”

Green bonds are essentially IOU’s issued by governments or companies to help fund specific projects or activities with a direct environmental benefit. They’re important financial instruments that can help finance the transition to a low carbon, resource efficient, and resilient economy.

In Ontario’s case, the province will invest the money it raises through its green bond issuance directly in public transit improvements and related environmentally-friendly infrastructure across Ontario. The green bonds would meet international certification and disclosure standards, which would enable them to be officially recognized as investments in sustainability.

My organization, Sustainable Prosperity, recently prepared a supplement for the Climate Bonds Initiative—an investor-focused civil-society organization working to mobilize debt capital markets for climate change solutions.

Our supplement noted that Canada’s green bond market broke new ground last year—the result of three issuances for wind and solar farms in Ontario and Quebec that were together valued at $855 million. We concluded that Canada’s C$5.7 billion-dollar green bond universe is beginning to mature.

This week’s Government of Ontario announcement is potentially a very significant development that will doubtless usher that maturation along.

The payoff, at least, could potentially be large. Demand for these instruments is sizable–the Council for Clean Capitalism pegs the market at $22 trillion. As a result, the province expects to garner substantial interest for the bonds, and therefore expects to be in a position to offer very attractive rates—meaning lower interest rates, and lower service costs for Ontarians.

Ontario will also bring its very attractive credit rating to the table—which will create even more confidence in the product. It’s a good bet, too, that if the 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 these waters.

We need to see much more in the way of details for the premier’s announcement to offer up any more substantive conclusions. But stepping back from this particular offering, what we are seeing here for the first time in Canada 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.

For more on green bonds, join Alex Wood on November 21 at Partnerships for Canada’s Clean Economy 2013, hosted by ISIS at the Sauder School of Business at the University of British Columbia, Vancouver. Wood will deliver an afternoon keynote on “Green Bonds and Innovative Financing in the Public Markets.”


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