OTTAWA — Canada’s environment minister says investors will soon be able to buy a new government bond to fund green projects, which will be selected according to guidelines that experts say could pose potential problems for buyers. potentials.
The Liberals want to issue $5 billion in green bonds and spend the proceeds within two fiscal years of the money arriving.
Environment Minister Steven Guilbeault says the government is aiming for an inaugural issue in the coming weeks.
In a speech at the Canadian Club Toronto on Wednesday, Guilbeault called bonds a crucial part of the government’s strategy to mobilize the investments needed to create a sustainable economy.
However, experts say the government will need to enforce a high set of standards on where the money goes to avoid investors questioning the credibility of the green tag on the bond.
Globally, the green bond market has grown amid talks on financing the transition, which a recent Royal Bank report suggests could require around $2 trillion domestically to bring the economy to net zero emissions within 30 years.
Investors looking for green bonds should know that their money is going to initiatives that align with their understanding of what green means, said Christie Stephenson, executive director of the Peter P. Dhillon Center for Business Ethics at the University of British Columbia.
“There is some well-placed caution around green bonds in general, but I also think they offer a lot of opportunity,” she said.
“What is not helpful for companies is to do what they have always done and reclassify them as green bonds. I think investors are hoping that the issuance of green bonds really stimulates the greening businesses, that it really funds projects that otherwise they wouldn’t get funded.”
She said issuers need to be clear about how products are used so investors know what they’re getting and can make an informed decision.
Guidelines recently released by the Department of Finance indicated that the funds could be used for new projects or for those receiving federal support in the previous two-year period.
The guidelines listed new electric vehicle charging stations and a federal commitment to plant two billion trees as programs that could receive funding, or home improvement tax credits as examples of where the funds could go. green bond funds.
Sherena Hussain, founder of Academic Collaboration Consulting, said some projects may show a more direct link to environmental outcomes, such as those that reduce emissions.
Projects have a life of their own and could make it harder for the government to consistently show it is meeting spending targets and milestones, she said.
“Based solely on the nature of these projects, it’s very difficult to tick the box consistently every quarter or every year,” Hussain said.
“These projects are organic and have their own set of risks and emissions profiles that overall, in theory, could tick the box, but in practice it can be a little more complicated to do.”
Alex Speers-Roesch, a Greenpeace Canada advocate who has closely followed the green finance efforts of the Department of Finance and the Bank of Canada, said the Liberals must fund “flawless” green projects through the first issue of green bonds to reassure investors.
Speers-Roesch, who heads the organization’s oil campaign, also said guidelines suggesting the money could be earmarked for carbon capture and storage systems could discourage investors if the money is used by the oil and gas sector to reduce emissions.
Federal guidelines for the bond prohibit funding programs or projects related to pipelines, oil and gas exploration and production.
Nuclear power projects have also come out, which the government says is in line with international standards and reflects comparable sovereign green bonds in the G7 and across Europe.
A third-party review of guidelines from Sustainalytics gave the plan an overall boost to meet market needs and send money to projects with an environmental impact.
The company also noted that some eligible projects could have “negative environmental and social outcomes” that the government should manage and mitigate, including any violation of Indigenous rights or local ecosystems by hydropower projects.
This report from The Canadian Press was first published on March 9, 2022.
Jordan Press and Mia Rabson, The Canadian Press