Canadian green bond market on the rise after record quarter
TORONTO (Reuters) – Canadian companies issued a record number of green bonds in the second quarter, and bankers expect the debt instrument to become more popular as issuers are able to charge a premium than eco-friendly investors are willing to pay.
As businesses and financial institutions face increasing pressure from investors to adopt more environmentally friendly practices, green bonds are seen by some as a way to work towards the transition to a clean energy future.
One of the reasons they are gaining traction in the fixed income world is that debt tends to be sold at a higher price, consistently rising one to six basis points from the price of debt. ‘a non-green bond, which reduces the cost of fundraising. for the sender.
Green bond issuance in Canada reached C $ 4.9 billion ($ 3.9 billion) in the second quarter, its best performance to date and compared to C $ 2.6 billion in the first quarter, according to the data from Refinitiv. Global green bond issuance, however, slowed to $ 126 billion in the second quarter, from $ 130.8 billion in the first three months of the year.
RBC Capital Markets, TD Securities Inc and CIBC World Markets Inc were the primary bookkeepers of Canadian green bonds.
“The climate agenda has gained momentum globally and businesses, investors and governments are at the forefront of the agenda,” said Valérie Lemieux, Head of Public Sector Canada for HSBC Bank Canada.
Green bonds are fixed income securities that generate capital for projects that provide environmental benefits, including low-carbon transportation or renewable energy.
Richard Sibthorpe, head of global debt capital markets at BMO Capital Markets, said that while investor demand for green bonds continues to outstrip supply, the constraint is not the lack of qualifying projects.
What reduces supply is the time it takes to ensure that sustainability frameworks are appropriately developed and aligned with the goals and the many environmental, social and governance (ESG) finance options. open to issuers, he said.
Several companies, including Alimentation Couche-Tard and Brookfield Finance, as well as the Canada Pension Plan Investment Board, launched green bonds this year.
“All else being equal, we are seeing green bonds outperform non-green bonds in terms of oversubscription and pricing,” said Amy West, Managing Director and Global Head of Sustainable Finance and Business Transitions at TD Securities.
For many investors, including banks, asset managers, and pension managers, green bonds meet a need as they face continued pressure to incorporate ESG practices into their investment decisions.
Trevor Bateman, head of credit research, portfolio management and research at CIBC Asset Management, said that while green bond yields versus regular bonds match closely, the premium means the investors sacrifice a “small amount” of return compared to investing in a tie.
The growing popularity of green bonds also tells a larger story of the more general rise in economic activity as countries recover from the coronavirus pandemic.
The value of mergers and acquisitions (M&A), initial public offerings (IPOs) and Canadian equity offerings also hit an all-time high in the first half of 2021, according to data from Refinitiv.
More than $ 104 billion in mergers and acquisitions were announced in the second quarter of this year, up from $ 90.7 billion in the previous quarter.
IPOs reached C $ 3.08 billion in the April to June period, compared to C $ 3.02 billion in the first quarter.
Stock offerings fell to $ 12.7 billion in the second quarter, from $ 20.8 billion in the first three months of the year, but emissions accumulated for the first half of the year reached a record high.
($ 1 = 1.2435 Canadian dollars)
Reporting by Maiya Keidan; Editing by Denny Thomas and Paul Simao