There’s plenty of room for Canada’s green bond market to flourish, particularly for corporate issuers, says Toronto-based rating agency DBRS Ltd. in a report published Monday.
Canada currently ranks ninth in the world with approximately US$4.5 billion of green bonds issued in 2018, and almost US$3 billion issued in the first quarter of 2019.
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“Canada has a noteworthy green bond market, although it is still a relatively small player compared with leading issuers (i.e., the United States, China and France),” DBRS says in a release announcing the report.
In 2018, global issuance reached a record of US$183.2 billion, DBRS notes, adding that US$37.9 billion has been issued so far in 2019.
“International development banks remain among the world’s largest green bond issuers, but strong institutional investor demand has allowed for a broadening base of issuers to enter the market, including private- and public-sector institutions as well as issuers from emerging markets,” it says.
Looking ahead, DBRS expects the popularity of green bonds to continue growing, “as mainstream investors look for environmentally friendly investment opportunities.”
Canadian green bonds in particular “are attractive to international and domestic investors because they often trade at a premium to standard bonds on the secondary market as a result of their scarcity and generally shorter terms to maturity as well as the involvement of dealer syndicates,” DBRS says.
Additionally, the corporate sector in Canada has yet to participate in the green bond market to the extent that companies in other markets have done, it notes.
DBRS expects that “as global climate change initiatives strengthen, and the push toward environmental sustainability increases, the Canadian green bond market will continue to thrive.”