While cannabis stocks got much of the attention from investors this year, a different type of green investment is beginning to emerge in global markets. Green Bonds are used to fund environmental and climate-friendly projects such as renewables, energy efficiency, water efficiency, bioenergy, low carbon and green buildings, to name a few.
This rapidly expanding sector is expected to issue $250 billion in Green Bonds in 2018 according to Moody’s, up from $155 billion the previous year. The Climate Bonds Initiative expects annual Green Bond issuance to reach $1 trillion as soon as 2020.
Investors in Green Bonds are typically large institutions or governments, but retail investors like you and me can also take advantage of this growing sector while helping to make a measurable impact on the environment.
CoPower Green Bonds
Enter CoPower. Their Green Bonds include a 6-year bond that offers 5 percent annually and a 4-year bond that offers 4 percent annually. Did that pique your interest? Mine, too!
Investors can choose to receive quarterly interest payments (simple interest) deposited directly into their bank account with the principal repaid at maturity, or allow interest to be re-invested into Green Bonds, earning interest on all interest accrued as well as on their principal investment (compounding interest).
The minimum investment is $5,000, and bonds can be purchased in $1,000 increments thereafter. Investors can purchase bonds directly through CoPower or by opening an RRSP or TFSA at a discount brokerage such as Questrade. Check with your financial institution or advisor to see if CoPower Green Bonds are an eligible investment inside your portfolio.
It’s important to note that CoPower Green Bonds are private investments so they are not traded on any public exchange and cannot be easily sold or traded on a secondary market. Investors should be prepared to hold their bonds to maturity.
In what type of projects does CoPower invest?
One of CoPower’s most recent investments was a $6.4 million portfolio of residential geothermal heating and cooling projects in Kelowna, BC. The system captures thermal energy from the ground and transfers it through the home’s existing heating and cooling system (reversing in the summer to remove heat and transfer it to the cooler ground).
Such a system could cost individual homeowners between $30,000 and $50,000 upfront to install. With CoPower’s financing, the project developer, GeoTility, installs the geoexchange systems and charge homeowners a fixed quarterly fee in return for the energy services.
CoPower believes the risk of default is low since heating and cooling is considered an essential service.
The feel-good story is that the 658 individual projects in this portfolio are expected to avoid more than 3,273 tonnes of CO2e annually. That’s the equivalent of each homeowner involved getting rid of their own car and their neighbour’s.
CoPower’s other project investments include several portfolios of LED lighting retrofits in condo buildings across Ontario, BC and Alberta, as well as solar projects in Ontario.
Who is investing in CoPower Green Bonds?
CoPower says its Green Bond investors include, “millennials making their first investment, grandparents investing on behalf of a grandchild, investment advisors making purchases for clients, and a major Canadian financial institution.”
I spoke with one of their millennial investors, Dr. Carl Durand, a 31-year-old optometrist.
Dr. Durand initially invested in 2017 with CoPower’s second round of Green Bonds, and has since invested in CoPower’s third round of Green Bonds released in 2018.
He said he heard about CoPower through Tim Nash of The Sustainable Economist.
“I had been looking for Green Bond options but found that most were only available to residents of certain provinces. Tim had suggested I look into CoPower which had just started at the time.”
Green Bonds are part of Dr. Durand’s portfolio of “couch potato” style ETF investments, which includes Canadian, U.S., and International equities, as well as REITs and preferred shares.
“I previously had Canadian bond ETFs (such as VAB) but I replaced those with my CoPower green bonds as the fixed income part of my portfolio,” he said.
Why invest in Green Bonds? For investors like Dr. Durand, it’s looking at what’s good for the planet but also good for his portfolio.
His initial motivation was to reduce his personal carbon footprint and directly fund the growing green economy. He felt that governments couldn’t be counted on to take action on climate change, so individuals needed to step up too.
When he did the math and saw that CoPower’s annual return was 5 percent (on its 6-year Bond), it meant that he could also improve the returns on the fixed income part of his portfolio by about two percent.
“I guess you could say I came for the environmental benefits and stayed for the returns,” he said.
Dr. Durand uses Questrade to hold his CoPower Green Bonds within his TFSA and RRSP, but when it comes to non-registered investments he opted to go directly through CoPower’s platform.
When it comes to risk, Dr. Durand considers himself to be fairly risk averse as an investor. Diversification reduces risk, which is why he invests in broad ETFs rather than individual stocks.
Even though private investments, like CoPower Green Bonds, are considered a riskier asset class, he considers them to be well-diversified “because of the number of different projects they are involved in (from solar to geothermal to energy efficiency) and that these projects are taking place in many locations across the country,” and is comfortable with the risk-reward equation given his financial and impact goals.
Also, he adds, the sheer number of stakeholders involved in the projects such as the thousands of condo owners in the LED retrofit projects, and hundreds of homeowners in geothermal projects, spreads out the risk a lot more, “which puts my mind at ease.”
A major climate change report issued recently by 91 scientists from 40 countries warned of catastrophic effects of climate change arriving as soon as 2040 without drastic action to reverse course.
Investing a small portion of your portfolio in Green Bonds seems like an appropriate action to take in order to make an impact on the environment while at the same time boosting returns on the fixed income side of your portfolio.
Did I mention the 5 percent fixed return on CoPower’s 6-year bond?
If helping the planet doesn’t warm your heart, at least the investment can pad your wallet. Whether you’re a socially conscious millennial looking to make an impact, or an income-hungry retiree looking for reliable fixed income, CoPower’s Green Bonds are worth a look.
Learn more about the Green Bonds issued by CoPower here.
This post has been brought to you in partnership with CoPower. All views are my own. Full details are available in the CoPower Green Bond III Offering Memorandum.