RE Royalties Green Bonds

This post is sponsored by RE Royalties. All opinions are my own.

The federal government’s recent throne speech put climate change and sustainability at the forefront, making it abundantly clear that the future of economic and job growth will be led by investments in green technology.

This shift towards more sustainable investing is not only happening at the government level, but large institutions and asset managers are also going green and striving to make more sustainable investment choices.

The Canada Pension Plan, managed by CPP Investments, more than doubled its investments in global renewable energy companies in 2020.

Blackrock, the world’s largest asset manager, announced a number of initiatives that put sustainability at the centre of its investment approach – including exiting investments that have high sustainability-related risk:

“Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.” – BlackRock CEO Larry Fink.

Robo-advisor Wealthsimple revamped their SRI portfolios, creating its own low-cost ETFs – ones that don’t just include the best of the worst companies and industries.

Green Bonds

At the individual level we can make an impact by reducing our climate footprint and also by investing our money towards a greener and cleaner future. I’ve written before about Green Bonds and how investors can marry investment returns with their environmental interests.

Since then, the demand for Green Bonds has continued to surge around the world. Despite a global pandemic, Moody’s forecasts total Green Bond issuance of up to $225 billion for 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.

Vancouver-based RE Royalties recently announced a successful closing of its first Green Bond issuance – raising $5.5 million. Each $1,000 Green Bond bears an interest rate of 6% per year, paid quarterly, for five years.

Even if the notion of investing in renewable and sustainable energy projects doesn’t get you excited, a 6% annual return is sure to get your attention.

Fixed income returns are going to be challenged for the foreseeable future. 5-year Canadian bond yields are still hovering around record lows (0.37%), while the best five-year GICs are still paying less than 2% interest.

bond rates

Indeed, Green Bonds paying 6% annual interest can be good for your investment portfolio and good for the planet.

Let’s be clear: I’m not arguing that Green Bonds should replace the government bonds and GICs in your portfolio, but a relatively small investment could boost your fixed income returns while also making a positive impact in the fight against climate change.

About RE Royalties

RE Royalties is a public company with shares listed on the TSXV under the symbol ‘RE’. It acquires revenue-based royalties from renewable energy generation facilities in Canada, the U.S., and Europe.

RE Royalties pledges that its Green Bonds will:

  1. Provide investors with a strong fixed income, secured against investments made in renewable and sustainable energy projects.
  2. Only be invested in sustainable and renewable energy projects that will reduce greenhouse gases and mitigate the impacts of climate change.
  3. Be aligned and compliant with the ICMA Green Bond Principles (2018).

The current portfolio lists royalties from 69 solar, 14 wind, and 3 hydro projects.

How does the royalty structure work?

RE Royalties provides renewable energy operators and developers with the financial flexibility to grow without resorting to dilution, asset sales or restrictive debt covenants. Let’s look at an example of one of these arrangements:

Aeolis Wind Power Corporation was an original developer of the 102 MW Bear Mountain Wind Project located in north-eastern BC. Aeolis sold its equity in the project to AltaGas, who ultimately built the project. As part of the sale, Aeolis received a gross revenue royalty on the project.

Aeolis had other clean energy development opportunities and needed the capital to pursue them. Royalty payments from the Bear Mountain Wind Project were not enough to provide this funding.

RE Royalties provided Aeolis with an upfront payment of $1.24 million in exchange for a portion of their existing royalty for the remainder of the agreement. By monetizing a portion of Aeolis’ royalty, it allowed them to pursue further development opportunities while retaining a larger ownership position. 

How To Invest In RE Royalties Green Bonds

The minimum investment is $5,000, purchased in increments of $1,000. RE Royalties Green Bonds earn 6% simple interest annually, paid quarterly into your brokerage account. For example, on a $5,000 investment, you will receive $300 annually, or $75 quarterly, for the next five years after your investment. After five years, you will receive the full $5,000 back.

They are available to investors in non-registered or registered (RRSP, TFSA, RRIF, LIRA, RESP and RDSP) accounts across Canada.

RE Royalties Green Bonds are senior secured against the underlying assets of the company, unlike most competing Green Bond options. This ensures that its investments are ranked in priority to other debts.

Note that you cannot sell RE Royalties Green Bonds. They are private investments for a 5-year term, and they are not traded on public exchanges like stocks.

Final Thoughts

It’s not often we talk about socially responsible investing and higher returns in the same breath. But times are changing.

Governments and large institutions are putting more emphasis on sustainable investing and green technology. Investment firms are coming out with more and more SRI and ESG investment products and portfolios to meet the growing demand for sustainable investing.

This ‘green’ shift is not just happening to create headlines and good will. There’s money to be made from investing in green technology and renewable energy projects.

Green Bonds can play a role by investing in sustainable projects, and also by delivering strong returns.

Click here to learn more about RE Royalties Green Bonds.

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