Feds plan $5-billion green bond issue

The federal government is aiming to raise $5 billion for green infrastructure investment when its inaugural green bond hits the market later this year.

The government indicated in the 2021 federal budget that it will publish a framework for issuing green bonds in the coming months, in advance of its first green bond launch that’s planned for sometime in fiscal 2021-2022. The initiative was first proposed in the fall economic update last year.

In today’s budget, the government indicated the planned bond — the “first of many green bond issuances” — may finance a variety of projects, including investments in green infrastructure, cleantech innovation and nature conservation.

Ontario was the first government in Canada to issue a green bond issue back in 2014. The government initially planned to raise $500 million, but ended up doubling the size of the offering in the face of huge investor demand.

The global green bond market has continued to grow significantly since then.

According to budget documents, the presence of AAA borrowers in the market “will help create a more mature market for investors who are looking for a green portfolio, but also need to manage their investment risk.”

If the federal government’s first green bond hits its target of raising $5 billion, that will represent just 2% of the $286 billion in bond issuance that the government has planned for the year.

The government is also considering diversifying into “social bonds” in the future.

Similar to green bonds, these kinds of instruments raise financing for projects designed tackle social issues or generate positive social outcomes, such as by enhancing infrastructure, improving food security or creating access to affordable housing.

“Social bonds are an opportunity to connect socially conscious investors with Government of Canada bonds that support social objectives such as reducing homelessness and improving access to high-quality early learning and child care,” the government said in today’s budget.

According to data from Refinitiv, global issuance of social bonds soared in 2020, as governments, financial institutions and other organizations invested in relief and recovery efforts in the face of the disruption inflicted by the Covid-19 pandemic.

Global social bond issuance totalled US$164.2 billion in 2020, which was almost 10 times the previous year’s total, powered by a record US$77.4 billion issued in the fourth quarter of 2020.

Despite the huge jump in social bond offerings last year, the segment was still outpaced by the more mature green bond market, which saw total global issuance rise by 26% year over year to US$222.6 billion.

The idea of the federal government issuing social bonds will be considered as part of the next round of Debt Management Strategy consultations in the fall, today’s budget said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.