Sustainable bond market boom on pause, finds ISF's 10-year review

The inaugural “Canadian sustainable bond market report” from the Institute for Sustainable Finance examines a decade of issuances of some of the most important instruments for financing positive environmental and social outcomes. Use of proceeds from Green, Social, Sustainability, and Sustainability-Linked bonds support everything from clean energy and green buildings, to women’s empowerment to Ukraine sovereignty.

“This is a thorough research report that provides a comprehensive analysis of Canada's GSS+ bond landscape,” said Jim Leech, Chair of ISF’s Advisory Board. “Anyone interested in advancing sustainable finance in Canada should pay close attention to these market trends and ISF’s policy recommendations.”

The story of the GSS+ bond market in Canada is one of dramatic growth followed by a marked slowdown. The year 2021 witnessed a market boom, reaching US$21.3 billion in issuance volume. The GSS+ bond market remained robust in 2022 (US$20.3 billion) but experienced a slowdown in 2023 (US$14.8 billion). The inaugural deal counts in 2023 dropped to six, less than half the number in the previous two years. 

“A key finding is that Green Bonds make up the large majority of the Canadian sustainable bond market, and most of that goes to financing traditional conventional green infrastructure projects like clean transportation and clean energy,” said Yingzhi Tang, ISF Senior Research Associate. “But there is room for growth for other priorities like climate adaptation and biodiversity conservation, which are often overlooked.”

Download the report, here.

Several policy priorities emerge that have the potential to stimulate the market:

• The forthcoming green and transition taxonomy launch in Canada is expected to foster market confidence and encourage new growth around GSS+ labelled instruments.
• Federal, regional and local governments act as powerful catalysts by issuing government GSS+ bonds.
• Mandatory sustainability disclosure requirements and clearer guidance can mitigate green/transition-washing risks.
• Tax incentives and direct subsidies for issuers and investors can accelerate the development of the GSS+ bond market in Canada.
• Encourage financial institutions to calculate and disclose taxonomy-aligned asset ratios.

Overall, this report provides a comprehensive analysis of Canada's GSS+ bond landscape, including market trends, issuer profiles, and allocation of proceeds. It also examines the challenges of green/transition-washing and proposes policy recommendations to catalyze further market development.