Solar farm on a rural hillside

The global green bond market grew rapidly in 2019, and Canada is poised to see its own green bond market expand, according to a new paper from the Investment Industry Association of Canada (IIAC).

The industry trade group reported that global green bond issuance rose by 51% in 2019, with almost 1,800 new issues, raising US$254.9 billion.

IIAC noted that issuance of “sustainability and social bonds” jumped last year. The market’s resurgence followed relatively modest growth in 2018.

Canada remains a “relatively small player” in the global green bond market, IIAC noted.

Initially, most of the green bond issuance in Canada came from the public sector, IIAC said, “unlike in other international markets where many issues originate in the corporate sector.”

While several Canadian issuers have placed bonds in international markets, IIAC said that domestic investors remain the main buyers of Canadian green bonds too.

The paper suggested that there is potential for the market to grow broader and deeper.

“As the Canadian green bond market matures, more investors are likely to participate in this market,” IIAC said. “This will also support market liquidity for established names in the marketplace.”

At the same time, issuance has started to expand to a wider spectrum of issuers, the paper noted.

“Canadian corporations and pension funds are also entering the domestic market as issuers, as they have in other countries,” the paper said.

“This should continue to evolve and accelerate given the positive investor reception towards mandates, and competitive pricing of green bonds,” it said.

IIAC said it will continue to work with its internal committees, buy-side firms and the Bank of Canada to help build “a more liquid domestic market for green bonds.”

To that end, the paper included a series of recommendations for issuers, investors and governments designed to help foster growth of Canada’s green bond market.

“Canadian debt capital markets will continue to increase their focus on the green market sector as the increase in socially and environmentally related projects are funded by mainstream investors committed to sustainable projects,” the paper said.