The ABCs of CPP – G

The Canada Pension Plan Investment Board (CPPIB) announced on June 11, 2018 that it plans to issue Green Bonds, (also known as climate bonds), becoming the first pension plan in the world to do so. These designated bonds are intended to encourage sustainability, and to support climate-related or other types of special projects.

According to the CPPIB’s website, “Since their introduction in 2007, Green Bonds have become mainstream in the financial community with the annual issuance of Green Bonds reaching $155 billion in 2017, a 78 percent increase over 2016. Annual issuance is expected to reach $250-$300 billion in 2018, and increase to $1 trillion by 2020 according to the Climate Bonds Initiative.”

Green bonds come with tax incentives such as tax exemption and tax credits, making them a more attractive investment compared to a comparable taxable bond. This provides a monetary incentive to tackle prominent social issues such as climate change and a movement to renewable sources of energy. To qualify for green bond status, they are often verified by a third party such as the Climate Bond Standard Board, which certifies that the bond will fund projects that include benefits to the environment.”

They go on to say: “The World Bank is a major issuer of green bonds…World Bank green bonds finance projects around the world, such as India’s Rampur Hydropower Project, which aims to provide low-carbon hydroelectric power to northern India’s electricity grid.”

The CPPIB’s website states:

“CPPIB has announced plans over the past year to invest more than C$3 billion in the renewable energy sector, as it works to ensure the CPP Fund is well-positioned for the expected global transition to a lower-carbon economy.

CPPIB’s Green Bond Framework defines three categories as eligible for investment from Green Bond proceeds:

  • Renewable Energy (wind and solar);
  • Sustainable Water and Wastewater Management; and
  • Green Buildings (LEED Platinum certified).”

They go on to say: “Any Green Bonds issued in Canada will be issued on a private placement basis only to certain qualified accredited investors.”

Funds-Europe.com reports “One of Sweden’s major institutional investors–the AP4 pension fund–has built a portfolio of green bonds that totalled 401 million Euros at the end of 2017.

Niklas Ekvall, chief executive of the fund, said in a report: “AP4 believes that transparent reporting of climate-related risks and opportunities contributes to a faster transition to a low fossil fuel society.”