Environmentalists urge Bank of Canada to be more active on climate change

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OTTAWA – Environmentalists are urging Canada‘s central bank to become more aggressive in financing green investments, including actively buying a proposed federal tool to finance the transition to a low-carbon economy.

The bank is working on issuing a federal green bond that Trudeau’s Liberals proposed in last month’s budget, which Gov. Tiff Macklem suggested could be part of the bank’s purchases under certain conditions.

Greenpeace’s Alex Speers-Roesch said the central bank should intervene more actively in markets to stimulate investment where it is needed, noting a similar suggestion from the Dutch central bank in recent days.

This activity would include buying things like green bonds.

Greenpeace is calling for the Bank of Canada’s mandate to include the fight against climate change when it accepts its new marching orders with the federal government later this year.

Speers-Roesch highlighted the deal as a way for the bank to maintain its independence from political interference by letting the Bank of Canada decide on specific climate-related measures.

The framework agreement is renewed every five years and sets the overarching objectives of the bank’s monetary policy, which since the 1990s has focused on keeping inflation at 2% per year.

“Central banks have enormous power here,” Speers-Roesch said.

“Looking at the carbon intensity and other sustainability characteristics of the assets they buy is a great way to make sure they’re supporting this transition and not slowing it down.”

A report released this week by the central bank said climate-intensive assets were not properly valued, which could expose investors to sudden losses and delay the low-carbon investments needed to meet climate goals. global.

The Bank of Canada is working on a pilot project with a handful of financial institutions to better assess the risks associated with climate change. A final report is expected later this year.

The Financial System Review released Thursday found that many investors are already turning to environmentally or socially conscious investments, which in Canada means bond issuance has gone from $ 2 billion to $ 2 billion. dollars in 2017 to $ 13 billion in 2020.

Globally, the green bond market has grown as part of the transition finance talks, which one expert says may be different in Canada due to the country’s energy sector.

“It is clear that a large part of the Canadian energy sector needs to begin this transition, and it will not happen overnight. Capital is needed to support this transition, ”said Heather Lang, executive director of enterprise solutions at Sustainalytics, which helps issuers create green bonds.

“Green bonds and bridging finance can really help allocate capital to support this transition and can help Canada potentially attract foreign investment.”

The Liberals plan to issue $ 5 billion in green bonds during this fiscal year, which began in April.

Macklem said Thursday he expected high interest from investors.

He also suggested that the Bank of Canada, which issues federal bonds, might consider buying them as well depending on its buying program, known as quantitative easing, or QE, which aims to bring down the bonds. interest rates on things like mortgages and business loans.

“I could imagine that could be included in our own purchases, if we were doing QE, when it is fully implemented,” Macklem said.

The Liberals are also considering issuing social bonds that allow investors to donate their money to a particular social service, such as child care or programs that reduce homelessness. Bonds have exploded in popularity during the pandemic as the economic downturn has exposed social inequalities.

“People have become very painfully aware of this social inequality in the world and the need for more funding,” said Alison Babbit, partner at Norton Rose Fulbright, adding that public demand has spurred some of this growth.

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“Public demand is driving this growth… and, of course, all of these institutional investors and other asset managers are responding to it.”

The key for issuers is to detail where the money raised from bonds goes, to explain how money has performed against set goals, and to manage the money separately from other funding to maintain investor confidence. .

This report by The Canadian Press was first published on May 21, 2021.



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