The federal government raised $5 billion from investors this week in its first ever sale of a so-called green bond, an increasingly popular investment vehicle that promises to combat climate change while making money, too.
Ottawa announced its plans to issue green bonds in the 2021 federal budget, but the first actual sale of a federal government-backed bond closed on Tuesday.
“During the time I was an environmental activist, you had to convince people to pay attention to climate change,” Environment Minister Steven Guilbeault said Wednesday.
“Those days are pretty much over. Today’s announcement is proof that an economic win is an environmental win.”
The bond offering called for $5 billion worth of bonds that will mature in December 2029. The bonds had a 2.25 per cent coupon on them, meaning they will pay investors that much every year for the next 7.5 years before their initial investment is paid back in 2029.
That yield is about 0.02 percentage points lower than what regular government debt of a similar time frame is offering, which means holders of the debt are willing to get a slightly worse deal on their return, because of the environmental benefits of the investment.
“There was a modest greenium for the deal, which was well in demand by domestic and international investors,” said Trevor Bateman, head of credit research at CIBC Asset Management.
Green bonds have become increasingly popular among investors looking for safe returns in infrastructure and other projects that mitigate concerns about sustainability. While Canadian companies including Enbridge and Telus have issued their own green bonds, this week’s offering is the first such bond by the federal government.
Funds will pay for environmentally friendly projects
The funds will be used to pay for things such as renewable energy projects, clean transportation initiatives, wastewater management and other initiatives, according to a release.
Tourism Minister Randy Boissonnault said the bond offering was twice as popular as anticipated, with more than $11 billion worth of buy orders coming in — enough to make it the biggest Canadian-dollar-denominated green bond ever. The government sold the bonds to 98 different investors, almost half of whom came from outside Canada.
Ryan Goulding, who manages bonds at Vancouver-based investment firm Leith Wheeler, managed to get his hands on some of them for his client portfolios, and he said he wasn’t surprised to see the strong demand.
“We knew the order book would be huge. If anything, I would have expected more international buyers … since the ESG mandates are really dominated out of Europe,” he said, referring to Environmental, Social and Governance, an investment mantra that seeks to put money to work only in sectors and companies with best practices in those areas.
Interest in environmentally friendly investing has exploded in recent years, he said.
“I get questions on these all the time,” he said.
“There’s definitely an appetite and it has definitely been growing.”
More than $500 billion US worth of green bonds were issued around the world last year, and this year is on track to be even higher.