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Canada plans to issue its debut "green" bond in the spring of
2022, a $5 billion tranche that will allow the North American
nation to join the countries tapping private capital to tackle
climate and clean technology solutions.
Green bonds, such as those Canada is planning to use to fund
investments in climate and environmental initiatives, typically are
issued to fund large-scale, capital-intensive, eligible green
infrastructure projects such as energy efficiency, transit, or
renewable power projects that result in positive environmental
outcomes, including climate benefits.
"Sovereign bonds are generally very liquid, easy for investors
to get in and out of," IHS Markit Executive Director Peter Gardett
told Net-Zero Business Daily.
"That is appealing, perhaps especially so among dedicated green
bond buyers, who are limited to a small segment still of the total
bond market," said Gardett, who has been tracking a subset of green
bond sales in 2021. He has been examining the use of bond proceeds,
issuer language, and product-level alignment with climate risk
reduction methodologies, including guidance provided by the
International Capital Markets Association's (ICMA) Green Bond Principles.
Countries as well as companies are increasingly using or
evaluating green bonds as viable financial instruments for raising
capital for climate and clean tech solutions that align with their
net-zero goals.
As of 21 December, the green bond total had nearly doubled since
mid-September, reaching $443.4 billion. This total includes $43.1
billion in certified climate bonds, and $400.3 billion in debt the
UK-based Climate Bond Initiative (CBI) said is aligned with its definition of green, The CBI
has been tracking green bonds since the European Investment Bank
issued the first one in 2007.
Taking "real action"
At the Leaders Summit on Climate in April, Prime Minister Justin
Trudeau pledged to reduce Canada's
emissions by 40% to 45% compared with 2005 levels by 2030, before
reaching net zero in 2050.
On December 16, Trudeau sent customary year-end letters
outlining his government's priorities to each member of his
cabinet, including the newly appointed Minister of
Environment and Climate Change Steven Guilbeault and Deputy Prime Minister Chrystia
Freeland, in which he described climate change as an
existential threat that requires "real action."
Trudeau particularly urged Freeland, who also serves as the
country's Minister of Finance, to "ensure budgetary measures are
consistent with the government's climate goals" and to launch an
annual green bond program, starting with the initial $5
billion.
As of 21 December, IHS Markit's database shows about 16
countries or blocs issued a combined 16 sovereign green bonds in
2021. The data show the EU as the leading sovereign green bond
issuer with about $58 billion in cumulative offerings, Germany
ranks second with $53 billion, followed by UK in third place with
$20.3 billion.
Canada is looking at the end of the first quarter of 2022 to
release the framework underlying its $5 billion offering. The bond
is set to be issued shortly thereafter.
Framework necessary for green bonds
The framework is essential because it clearly articulates the
proposed uses of the bond's proceeds and whether they align with
the Green Bond Principles, according to Sustainalytics, a
Netherlands-based environment, social, and governance research and
ratings analytics firm.
Essentially, the principles require a framework to clearly state
how the government will select the projects it expects to back
using the proceeds of the bond, the process for allocating those
proceeds, managing those funds, and finally a commitment to
reporting, Jonathan Laski, Sustainalytics corporate solutions
director, told Net-Zero Business Daily 22 December.
According to the Canadian Ministry of Finance, Canada has
engaged TD Securities and HSBC as advisers on structuring the bond,
and appointed Sustainalytics to provide an independent,
second-party opinion on its green bond framework.
Sustainalytics has provided second-party opinions for a number
of governments, including Ireland and Turkey, as well as for
companies that have issued green bonds. Laski said the company has
provided services for around 35% of such transactions, citing
Environmental Finance, an online news and analysis service
reporting on sustainable investment and green finance.
Without going into specifics about its review of the Canadian
bond framework, Laski said: "As with any issuance, we are retained
by an issuer to provide an assessment of their framework."
So, when the bond issuer goes into the markets to secure
investors, it can provide not just the framework, but also the
independent opinion that lays out how the planned activities,
investments, and expenditures are aligned with what the markets
consider green, Laski added.
Trudeau, like his US counterpart President Joe Biden, has
pledged to take a whole-of-government approach to tackling climate
change.
Elsewhere in the Americas
Canada is not the first country in the Americas to issue
sovereign green bonds.
Mexico in September 2020 issued an $890 million sovereign green
bond linked to UN Sustainable Development Goals. Mexico
followed up its debut in the sector less than year later with a
$167 million green bond.
Colombia in late September issued a 10-year Colombian Peso
750 billion ($200 million) sovereign bond to fund environmental
initiatives such as water management, cleaner transport solutions,
biodiversity protection, and migration to non-conventional
renewable power. It was the first green bond in the region issued
in a local currency. Colombia issued another Colombian Peso 650
billion ($172 million) green bond on 27 October.
According to ICMA, Chile remains the green bond leader in Latin
America, having issued $7.6 billion in the past three years.
According to IHS Markit's Gardett, sovereign green bonds are
seen as attractive to investors, and are often oversubscribed, as
was the case with Colombia.
"That appears to reflect a desire for green attributes over and
above the ordinary elements of the bond, though some dispute this
observation," he added.
Posted 22 December 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
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