The Council for Clean Capitalism’s work with Ontario’s political leadership and borrowing unit was catalytic in launching a provincial green bond program in 2014.
Ontario entered this market with a $500-million green bond issue in October that raised funds to finance transit infrastructure. This first provincial green bond issue in Canada was oversubscribed by nearly 500 per cent and socially responsible investors received preferential access to participate.
Bay Street investors were quick to promote their green credentials – many for the first time. Going forward the province plans to issue $1 billion of green bonds annually with the main constraint being the set-up of an efficient process to select eligible projects for the use of proceeds.
For issuers, the chief benefit of green bonds at this point is the attraction of a broader pool of investors with the “green” factor viewed favorably (as a “kicker”) by investors such as Blackrock.
For debt-side investors, green bonds provide a much higher level of accountability and transparency, with a direct line of sight to where proceeds are going. The labeled green bond market has tripled in size since 2013 (see page 48 for feature on green bonds), making it possible for institutional investors to create “green bond buckets” and target asset allocations to vastly expand the pool for climate solutions finance.
Tapping the $100-trillion bond market has the potential to be a game-changer for sourcing the $1 trillion needed each year to fund low-carbon infrastructure under a safe-climate scenario. In 2015, we look forward to working with other provinces, cities, and corporates to develop green bond borrowing programs using Ontario as a model.
Progress on energy efficiency
Focusing on improving the energy efficiency of buildings by ensuring data availability produces a double dividend: it helps pinpoint capital and operating cost-saving opportunities, and helps cut building GHGs – the single biggest source in cities.
The Council’s work with Toronto’s City Council and Chief Planner in cooperation with the Toronto Atmospheric Fund led to the drafting of a bylaw to require large buildings to report energy and water use. This bylaw is expected to come to vote early this year.
Dozens of U.S. cities have implemented this measure, and it has proved effective in reducing energy use and associated costs, as well as boosting real estate values.
With notable exceptions, such as Australia, the value of nature is mostly invisible on the system of national accounts, which leads to poor decisions and inhibits optimal allocation of resources.
The Council has kept in close touch with Statistics Canada regarding its planned incorporation of commercial natural resources into the country’s official balance sheet and formal system of national accounts. Statistics Canada has given assurance this will be done by December 2015 – a year later than planned.
Nudging pension funds
In December, Ontario became the first province to require pension funds to disclose if they are investing sustainably. This is expected to nudge pension funds to integrate environmental, social and governance (ESG) factors into investment policy and practice. It’s an important way to build long-term wealth for pension funds and other institutional investors.
Despite the advances made in responsible investment, many fiduciaries still view the lack of clarity about the legitimacy of integrating ESG factors as a barrier. This simple regulatory requirement for disclosure signals that the government considers these factors to be legitimate within the investment context and does so without being prescriptive.
Similar disclosure requirements introduced in other countries (Australia and U.K. in 2000; Sweden, France and Germany in 2001; and South Africa in 2011) have significantly accelerated the prudent integration of sustainability factors into investment strategies. The making of this policy change has a 14-year history with many contributors, notably SHARE. The Council is honoured to have played a late-stage role over the past year to accelerate Ontario’s adoption of this disclosure requirement. K
The Council for Clean Capitalism is a group of forward-thinking companies that seek public policies in support of an economic system in which prices incorporate social, economic and ecological benefits and costs, and people know the full impacts of their marketplace actions. Council members include Catalyst Paper, The Co-operators Group, Hewlett-Packard Canada, Interface, Mountain Equipment Co-op, Sun Life Financial Canada, Teck Resources, TELUS, Vancity, Brookfield Johnson Controls, and Desjardins.