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.
Tourism Minister Randy Boissonnault, Environment Minister Steven Guilbeault and Associate Minister of Finance Rachel Bendayan were on hand to unveil details of the bond sale at a press conference in Ottawa on Wednesday.
The initial offering called for $5 billion worth of bonds that will mature in December 2029. Bloomberg data suggests the bonds had a 2.25 per cent coupon on them, meaning they will pay investors that much every year for the next seven years before their initial investment is returned to them in 2029.
That yield is about 0.25 percentage points higher than regular government debt of a similar time frame is offering, which gives the bonds a so-called greenium over other investments.
“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
Boissonault said the bond offering was twice as popular as anticipated, with more than $11 billion worth of offers coming in.
“This was the largest order book to date for a Canadian dollar green bond from any issue in Canadian capital markets history,” Boissonault said.
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.
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.
“During the time I was an environmental activist, you had to convince people to pay attention to climate change,” Guilbeault said. “Those days are pretty much over.”
“Today’s announcement is proof that an economic win is an environmental win.”