The Investment Industry Association of Canada (IIAC) is looking for ways to encourage more liquidity in Canada’s green bond market.
An IIAC paper, Opportunities in the Canadian Green Bond Market, documents the growth of the global green bond market, and looks at Canada’s position within that market.
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While the green bond market is expected to continue growing, thanks to intensifying efforts to reduce emissions, and rising investor demand for socially-responsible portfolio holdings, the IIAC is working to develop a set of recommendations designed to promote the development of a more liquid green bond market in Canada.
“We aim to… identify financing structures and practices and stimulate thinking on common approaches to promote a more vigorous market,” the IIAC states in the paper.
According to the report, US$156.9 billion worth of green bonds were issued worldwide in 2017, involving more than 1,500 new issues. The volume of deal activity was up 80% from the previous year, and the number of issuers continues to grow. Looking ahead, green bond issuance could top US$200 billion in 2018, the IIAC report says, and the types of projects that are being financed by these issues will expand.
In Canada, green bonds issuance has largely come from the public sector. In the future, there is scope for the corporate sector in Canada to embrace green bond issuance, the paper suggests, as is the case in other international markets.
“Canadian corporations have not yet participated in the domestic market as issuers, as they have in other countries. This could change given the positive investor reception towards mandates and competitive pricing of green bonds,” the paper says. A growing crop of provincial and municipal issuers are also considering green bonds to finance environmentally friendly projects, it adds.
“As the Canadian green bond market matures, more investors are likely to participate which will also support market liquidity for established names in the marketplace,” the paper says. “Canadian debt capital markets will embrace the green market sector as the increase in socially and environmentally related projects are funded by mainstream investors committed to sustainable projects.”
The IIAC will work with its debt markets committee and debt syndicate working group to develop its recommendations for enhancing market liquidity. In particular, it intends to propose recommendations, “around the development of a more uniform financing structure and common use of proceeds in Canada.”