Toronto set to follow city of Ottawa’s lead and issue ‘green’ bonds

The city of Ottawa led the way last November with a breakthrough $102 million issue of 30-year green bonds, the proceeds of which were used to finance light rail transit in the nation’s capital.

Now comes word that the City of Toronto plans to follow suit with an issue of green bonds slated for later this year.

In a posting on its website, the city said that its green debenture program “will leverage on the city’s low borrowing interest rates to help finance the city’s transit and other capital projects that contribute to environmental sustainability.”

And what’s more Toronto said that the “expected growth of Green capital projects will allow the city to be a regular issuer of Green Debenture.”

While Toronto’s green debentures will have the same financial and legal characteristics of other city bonds, there is one difference with a green bond. The net proceeds will be used to fund projects supporting city’s environmental sustainability strategies.

The city hired Sustainalytics, a leading Green Bond second-party opinion provider, “to review the Green Debenture Framework and provide a second-party opinion on the city’s environmental credentials and the framework’s alignment with the Green Bond Principles, as administrated by the International Capital Market Association.”

If and when the green issue comes to market, the hope is to pay a slightly lower yield than a traditional debenture issue. It doesn’t always happen, despite the influx of green investors, in part because of the fiduciary duty of money managers is to get the best return for the level of risk taken on.

But Toronto, if for no other reason than the competitive bragging rights, will be fighting hard to achieve such a distinction. The reason: On its green bond, the City of Ottawa’s cost of funding was lower than what a comparable 30-year non-green bond issue would be.