Canada's Condominium Magazine

Green bonds could help fund GTA transit growth

Ontario premier Kathleen Wynne has announced that her government will issue the first green bonds in Canada for the purpose of funding public transit. This is the first new transit-specific fund-raising method proposed by Wynne, and it’s also the first that would be entirely voluntary. Other proposed funding tools would involve taxes and levies of various kinds, all of which have been opposed by interest groups in the province, including the development industry and businesses. Metrolinx, the body that oversees transit in the GTA, needs to raise $2 billion a year for the next twenty years to fund all the transit expansion plans on the table at the present.

The finance minister, Charles Sousa, is optimistic about the potential in green bonds, because “investors are hungry for this kind of stuff.” The premier herself is counting on Ontarians’ appetite for green bonds, noting that the worldwide market for them doubled in the last year. It now stands at $346 billion.

Green bonds are defined as fixed-income securities issued to raise money for specific projects that will provide some form of environmental benefit. The market for them so far—the first green bond was issued only in 2008 by the World Bank—has been mainly institutional, according to a policy brief issued by the University of Ottawa’s Sustainable Prosperity institute. What is needed now, in this still-early stage of their growth, is for governments to provide “the right support and enabling environment” to grow the green bond market.

Green Bonds directly involve the Canadian public in a positive way on the climate change issue. In a recent poll conducted by Nanos Research, 81.8 per cent of Canadians support the Green Bond initiative and 62.2 per cent say they would purchase Green Bonds with an interest rate similar to a Canada Savings Bond.

Green Bonds Public Policy Proposal, 2008

Canada’s green bonds market made a breakthrough last year, according to a report from the Climate Bonds Initiative, based in London, England. Three renewable energy project bonds were issued with a value of $855 million. This is small compared to the global totals, but they brought the total “universe” of green bonds issued in Canada to $5.7 billion. In the US, by comparison, the value of green bonds issued last year was $74 billion.

There is growing evidence that green bonds work. Two weeks ago, the African Development Bank issued an inaugural green bond program of $500 million to raise money for sustainable energy and other climate and environment-related projects. On the first day, October 10, it was oversubscribed, with orders for $550 million. Support was reported to be “very strong” from socially responsible investors, who bought 84 per cent of the bonds.

A spokesman for J.P Morgan, one of the managers in the transaction, called its success another “milestone” in the global development of the green bond market, one that will inspire confidence in other investors to get involved.

The exact structure of the proposed Ontario green bonds will not be known until next week when it is debated in the legislature. Early Canadian proponents, however, made it clear in a position paper issued in 2008 that such bonds should be available to all Canadians, general public and institutional investors alike, from private financial institutions.

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