Canada’s sustainable bond market rebounded in 2024, with issuance surging 68.5% year over year to US$25.1 billion, a report from the Institute for Sustainable Finance (ISF) shows.
Released Wednesday, the report said this bump in bond issuance was primarily driven by returning issuers and steady investor demand for sustainable assets.
There was a total of 53 deals recorded in 2024, up 56% year over year, marking a “robust recovery” for the market after issuance declined for two consecutive years.
Green bonds accounted for the bulk (82.5%) of total issuance in Canada. As the report describes, green bonds are dedicated to exclusively financing projects that deliver identifiable environmental benefits. The next largest category was sustainability bonds (11.3%), followed by sustainability-linked bonds (3.4%) and social bonds (2.7%). The umbrella term for these financial instruments is sustainable or GSS+ bonds.
Global GSS+ bond issuance was also up in 2024, rising 11.3% year over year to $1.1 trillion.
What are these bonds financing?
The report provided a breakdown of where Canadian GSS+ bond proceeds were allocated in 2024.
Clean energy accounted for 43% of total disclosed proceeds. This was followed by clean transportation (27%), green buildings (10%), energy efficiency (4%), water and wastewater management (3%) and multi-category projects (3%).
The remainder of proceeds was directed to essential services, natural resources, social housing and climate adaptation, which each accounted for 1-2% of total use-of-proceed allocations.
Ultimately, the report said these allocations underscored “the market’s focus on climate mitigation over adaptation.”
Where Canada stands globally
Canada represented a 2.4% global share of sustainable bond issuance in 2024 and roughly 2% of the cumulative global issuance to date, the report noted.
However, Canada still pales in comparison to the U.S., whose total green bond issuance is four times greater.
“The U.S. continued to dominate global issuance despite ongoing ESG backlash in that country, followed by Germany, China and France,” the report said.
Also, Canada’s rebound last year was in line with a broader trend in North America. In 2024, sustainable bond issuance across the continent increased by 60%, with green bonds making up the bulk of the total issuance amount, the report noted.
Recommended measures to spur further growth
To accelerate the growth of Canada’s sustainable bond market and increase its share of the global market, the ISF made a series of recommendations in the report.
This includes advancing voluntary sustainable investment guidelines, otherwise known as a taxonomy, to provide policy certainty; mandating standardized reporting and assurance for proceeds allocation and impact; and expanding sovereign and sub-sovereign issuance.
It also recommends developing a centralized sustainable bond database and boosting issuer and investor literacy to “broaden participation, particularly among smaller municipalities, Indigenous organizations, and small and mid-sized businesses.”
“Together, these measures can help strengthen Canada’s position in sustainable finance, close existing policy and data gaps and unlock capital for the transition to a low-carbon, competitive economy,” the report said.
Further, the report mentioned that while there have been no transition bonds issued in Canada to date, the federal government’s latest budget signalled that work on a Canadian sustainable finance taxonomy continues, which will define what “green” and “transition” investments are, thereby forming the basis for the future issuance of transition bonds. The taxonomy’s expected to be implemented by the end of 2026.
“We need to grow Canada’s sustainable bond market to finance environmental and social objectives that are important to Canadians,” said Yrjö Koskinen, ISF’s director of research, in a release.
“It will be particularly beneficial to see transition bonds finally take off in Canada, given the potential to finance reducing carbon emissions from heavy industry and oil and gas sector.”