Canada issues its first green bonds worth $5B to support climate investments

The government of Canada’s first 7.5-year, $5-billion green bond saw strong demand from both Canadian and international investors and will be the first of many to support government investments in the green economy, says the associate minister of finance.

Green bonds are a type of bond — a fixed-income security — that raises capital for a project with specific environmental benefits. Most green bonds have been either treasury-style retail bonds, with a fixed rate of interest and redeemable in full on maturity, or asset-backed securities tied to specific green infrastructure projects. If the offering is attractive to investors, the government can offer to pay a lower premium than it would normally pay to borrow money. 

“This green bond will play an important role in financing the Government of Canada’s historic investments in green infrastructure and other projects that will help fight climate change and protect the environment,” Randy Bouissinault, who is also the minister of tourism, told a recent news conference.  

“With more and more investors around the world seeking green investment opportunities, this helps to meet global demand.”

International buyers accounted for more than 45 per cent of the investors. The final order book was more than $11 billion from 98 investors, which set a record high for a Canadian dollar green bond offering, Bouissinault said. 

“Sustainable finance is critical as we transition to a cleaner, greener economy and continued and enhanced private sector investment is a crucial part of Canada’s work to meet a 2030 emissions reduction target and to achieve zero emissions by 2050,” Bouissinault added.

Steven Guilbeault, minister of environment and climate change, told reporters his government foresees investments in green transportation in support of the federal zero emissions vehicle program to help Canadians buy more low emission cars. Green bonds also can help support the government’s plan to plant two billion trees over the next 10 years and investments in greater energy efficiency, he said.  

In issuing green bonds, the government can signal that it’s serious about climate change, Ryan Riordan, professor of finance at the Smith School of Business at Queen's University, said in an interview. “This is a really easy, straightforward way to do it,” he said.

Green bonds enable the government to access preferential financing, said Riordan. The green bond yield is about 0.02 percentage points lower than regular government debt of a similar time frame, a “greenium” that reflects the high demand for the product among green investors, a government spokesperson said in an email. 

He added that the bond can also help boost the green market. Based on the outcome of the recent offering, future issuers will have a better idea of how to price their bonds. 

The federal government has developed a green bond framework in accordance with international best practices. It sets out nine categories of eligible green expenditures, including renewable energy and climate change adaptation, that align with the United Nations Sustainable Development Goals (SDG). Nuclear energy and the transportation, exploration and production of fossil fuels are among excluded expenditures.

One eligible expenditure category includes support for the development of technologies, products and processes for the bioeconomy (biomaterials, biochemicals, and next generation building products). The Forest Innovation Program, for example, facilitates the initial research and development in those areas. It also accelerates the development of clean growth technologies and products.

Eligible green expenditures include any government expenditures, including transfer payments, loans, subsidies, fiscal measures (such as tax credits and tax expenditures), and capital and operational expenditures. Expenditures related to research and development, funding for scientific purposes and international transfers in support of the eligible green expenditure categories can be included, as appropriate. 

The Government of Canada’s Interdepartmental Green Bonds Committee, with representation from relevant federal departments and Crown corporations, will be responsible for identifying and evaluating eligible projects to be financed under the framework. Finance Canada will make the final decisions.

The government will publish an annual impact report addressing the positive environmental impacts, such as GHG emissions avoided or hectares of land conserved of the eligible green expenditures, beginning within the first two years following the inaugural green bond issuance. The government says it also intends to report on the social benefits, such as the number of jobs created and impacts on Indigenous communities.

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