Torontoist Explains: Green Bonds, Making a Profit While Making a Difference

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Torontoist Explains: Green Bonds, Making a Profit While Making a Difference

Green bonds are helping to fund the transition to a renewable energy-based economy.

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Photo via the CoPower LinkedIn.

In the wake of U.S. President Donald Trump pulling out of the Paris climate accord, you might be looking for ways to protect the planet that don’t rely solely on governments and international treaties.

The divestment movement now boasts more than $5 trillion in money diverted from the fossil fuel industry, but that can’t be the end of the story. Equally important to withdrawing support from oil, gas, and coal is reinvesting that money in projects that build climate resilience and clean energy.

That’s where green bonds come in.

What’s a green bond?

First let’s back up a little further and start with: “What’s a bond?”

You can think of it as an IOU. An investor purchases a bond and the institution that issues the bond, whether a government or a company, pledges to pay the initial investment back plus with interest over a fixed period of time. One of the most common types of bond is a low yield government bond. Canada Savings Bonds or Ontario Savings Bonds, for example, have financed much of the public infrastructure you use everyday.

Green bonds can be considered a spin on that classic, reliable investment strategy. The funds raised through green bonds help fund infrastructure projects that offer environmental benefits like clean energy, transit, or energy efficiency.

A growing market

While the global green bond market is hot—Corporate Knights, a magazine dedicated to clean capitalism, recently estimated the market capacity for green bonds in Canada at $56.3 billion in 2017/18—this market has traditionally been dominated by major institutional players like pension funds and governments.

The province of Ontario issued its first green bond in 2014 and has since raised over two more issuances totalling over $2 billion for various transportation and health projects, including Toronto’s Eglinton Crosstown LRT. All three issuances were snapped up in minutes by major institutional investors who put in orders in advance.

But what if you’re an average Canadian with thousands of dollars to invest instead of millions, and you want to make a profit while making a difference by investing in a green bond?

Green bonds for the rest of us

More and more individual investors are seeking opportunities to invest in real assets that reflect their concerns about renewable energy and reducing carbon footprints. “We think the transition from an older-energy economy to a new-energy economy is one of the greatest wealth-creation opportunities of this generation,” says David Berliner, CEO and co-founder of Montreal-based CoPower.  

CoPower is one of several companies and organizations working to bring clean-energy backed green bonds to the general public. Ontario-based co-ops like Solarshare and LIFE Wind, for example, allow community members to pool investment dollars to build local clean energy projects. 

What am I actually investing in?

Unlike government bonds where you often don’t know how your money is being spent, green bonds have transparency built into their DNA.  

Take CoPower for example. On the company’s online investment platform, bondholders can check out and track the impact of the real community-scale solar, geothermal heating and cooling, energy efficiency retrofits, and LED lighting installation projects that back their Green Bonds.

Green bond financing allows CoPower to lend to community-scale projects that are generally too small to attract funding from larger lenders. Those projects generate steady revenues from the sale of clean energy or energy savings. As clean energy developers repay their loans, that money flows through to green bond investors as interest payments.  

This model allows investors to earn attractive returns of up to five per cent annually, while providing catalytic financing to help grow Canada’s clean energy industries.

An energy efficiency retrofit of Toronto's Harbourfront Centre Theatre backed CoPower's first Green Bond issuance in February 2016.

An energy efficiency retrofit of Toronto’s Harbourfront Centre Theatre backed CoPower’s first Green Bond issuance in February 2016.

Led by chief investment officer Kathrin Ohle, who has 25 years of experience in the field, CoPower’s internal investment committee performs due diligence on potential clean energy project finance opportunities. “We make sure our process is thorough, so that we can act quickly to provide the financing clean-energy project companies need while ensuring the projects are suitable additions to our green bond portfolio,” says Berliner.

Torontonian Braden Root, who recently doubled his investments with CoPower, hadn’t thought much about ethical investing and green energy until he discovered the company. “I had heard early conversations about financial tools where we provide a social good with private capital, but it seemed very far away, it seemed like it was only for accredited investors or people with a lot of money,” says the 29-year-old political strategist and social entrepreneur.

Although the social good and the return on investment have been key drivers in Root’s investments, he also appreciates the ease of using CoPower’s online platform, and the company’s helpful and straightforward communications. “I wasn’t inclined to go to my bank and fill out forms to transfer money,” he says. “But I think I did the whole thing in five or eight minutes.”

In a time when government action doesn’t always add up, green bonds empower the rest of us to take the clean transition into our own hands.

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