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NEXUS Article: Canada hires HSBC and TD for its debut green bond sale

What does this inaugural sale of green bonds by the Canadian Government mean for promoting a more sustainable country?

 

Contributing Editor: Philip Walsh

 

This recent announcement by the Canadian Government, HSBC Holdings PLC and the Toronto-Dominion Bank is part of an ongoing global trend in government sponsored sustainable financing.  As this article points out, Canada is following on the heals of similar bond issues in Europe, Chile, South Korea and Hong Kong.  Certainly, the political benefits of supporting impact investing are there for the current federal government as is the financial benefit to the financial institutions in terms of any fees they can generate through managing the bond issue, but to what degree is the green bond effectively doing what it is marketed to do?  The efficacy of green bonds may be driven principally by their level of environmental and social sustainability impact but there will still remain a need for some reasonable financial return as well.  This means that the governance behind to whom, and on what project, the funding is allocated requires a balanced approach with sufficient analysis of the environmental and social lifecycle of the project being invested in, and the economic risks associated with the investment. If sustainable investing is to avoid the pitfall of being described as “a soup du jour” or an investment fad, responsible governance of green investing will be required or sustainable investing may become unsustainable.

 

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Canada hired HSBC Holdings Plc and Toronto-Dominion Bank for its inaugural sale of green bonds, joining other nations including the U.K. and Germany in pursuing environmentally-friendly debt issuance.

 

The banks will advise on the design of Canada’s green bond framework, assist in the development of an ongoing program and support the debut issuance, according to statements released Monday. The country may seek to raise $5 billion (US$4.1 billion) through the sale, the government said in April.

 

This comes as environmental, social and governance bonds in Canadian dollars are about to hit an annual record with more than six months to go. Government green bond issuance has acted as a catalyst for other borrowers to follow suit.

 

“Based on what we’ve seen in other regions of the world, where we acted in a similar role, it tends to be a positive development on the overall market,” Valerie Lemieux, head of public sector Canada, global banking & markets at HSBC Bank Canada said in a telephone interview. “It creates a momentum.”

 

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HSBC has been involved in arranging inaugural sovereign green bond programs for the U.K., Poland, Netherlands, Chile, South Korea and Hong Kong. Earlier today, Telus Corp., a longstanding issuer of Canadian dollar debt, released a framework to potentially sell the country’s first sustainability-linked bonds.

 

Sales of ESG bonds in Canada so far this year reached at least $9.43 billion, according to data compiled by Bloomberg. That’s twice the amount sold in the comparable period a year earlier, and less than $100 million shy of the annual record reached in 2019.

 

Canada’s federal government has been progressively adding mechanisms to deliver on its commitment to cut greenhouse gas emissions 40 per cent to 45 per cent below 2005 output by 2030. Last month, the government named Kathy Bardswick, a former chief executive officer of The Co-operators Group, as the inaugural chair of Canada’s Sustainable Finance Action Council, which aims to support the development of a sustainable finance market in Canada.

 

Also, Canada Mortgage Housing Corp. is assessing the potential for an ESG bond, but doesn’t have a timeline, a spokesperson for the agency said Friday.

 

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