Guilbeault touts coming green bond, as experts stress need to choose projects wisely

Canada’s environment minister says investors will soon get to purchase a new government bond aimed at financing green projects, which will be selected under guidelines that experts warn could pose potential issues for would-be buyers.

The Liberals want to issue $5 billion worth of green bonds and spend proceeds within two fiscal years of the money coming in.

Environment Minister Steven Guilbeault says the government is targeting an inaugural issuance in the coming weeks.

In a speech to the Canadian Club Toronto on Wednesday, Guilbeault called the bonds a crucial part of the government’s strategy to mobilize the necessary investment toward creating a sustainable economy.

However, experts say the government will need to apply a high set of standards about where money goes to avoid investors questioning the credibility of the green label on the bond.

Globally, the green bond market has grown as part of talks around transition financing, which a recent Royal Bank report estimated could require about $2 trillion domestically to get the economy to net-zero emissions within 30 years.

Investors looking for green bonds need to know 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 Centre for Business Ethics at the University of British Columbia.

“There is some well-placed caution around green bonds in general, but I also think that they do offer a lot of opportunity,” she said.

“What isn’t helpful is for companies to do what they’ve always done and reclassify it as green bonds. I think investors are hoping that the issuance of green bonds is really driving the greening of corporations, that it really is funding projects that otherwise wouldn’t get funded.”

She said issuers need to be clear on how proceeds are being used so investors know what they’re getting and can make an informed decision.

Recently released guidelines from the Finance Department said proceeds could be used on new projects, or those with federal backing in the preceding two-year period.

The guidelines listed new charging stations for electric vehicles and a federal pledge to plant two billion trees as programs that could receive funding, or tax credits for home retrofits as examples of where green bond funds could go.

Sherena Hussain, founder of Academic Collaboration Consulting, said some projects can 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 more difficult for the government to show consistently that it is hitting goals and milestones from the spending, she said.

“Just based on upon the nature of these projects, it’s very difficult to check the box consistently every quarter or every year,” Hussain said.

“These projects are organic and have their own set of risks and emission profiles that overall, in theory, could check the box, but in practice, it can be a little more complicated to do so.”

Alex Speers-Roesch, an advocate with Greenpeace Canada who has closely tracked green financing efforts by the Finance Department and Bank of Canada, said the Liberals need to fund “unimpeachably” green projects through the first issuance of the green bond to assure investors.

Speers-Roesch, who heads the organization’s oil campaign, also said that guidelines suggesting money could go toward carbon capture and storage systems could turn off investors if the money is used by the oil and gas sector to reduce emissions.

The federal guidelines for the bond prohibits the financing of programs or projects linked to pipelines, oil and gas exploration and production, as well as nuclear energy projects.

A third-party review of the guidelines from the firm Sustainalytics gave the plan an overall thumbs-up in meeting market needs, and sending money to projects with an environmental impact.

The firm also noted some eligible projects could have “negative environmental and social outcomes” that the government would need to manage and mitigate, including any infringement on Indigenous rights, or on local ecosystems from hydroelectric projects.

This report by The Canadian Press was first published March 9, 2022.