Ottawa's Green Investment Push

The federal government announces an issuance of green bonds for the first time - and what to look out for in new sustainable investing regulations and labeling initiatives with Morningstar's Ian Tam

Ian Tam, CFA 8 December, 2020 | 4:28AM

 

 

Ian Tam: On November 30th, the Government of Canada at the federal level released the fall 2020 economic statement. Although much of the statement rallied around continued economic and social support for Canadians during the COVID-19 pandemic, the statement also mentioned a few points that were relevant for sustainable investments.

First off, in 2021 or 2022, the federal government plans to issue its very first green bond. Now, as a reminder, green bonds are debt instruments whose proceeds are typically used to finance environmentally friendly infrastructure products. The green bond market is not new in Canada. But many of the issuers tend to be municipal and provincial branches of government. The federal government issuing a green bond will be the very first of its kind.

Additionally, the statement announces the commitment of $7.3 million towards the creation of what's going to be called the Sustainable Finance Action Council, a public-private collaboration that amongst other things will work towards improving climate disclosures for issuers and developing standards for the identification of sustainable investments.

That last point is of particular relevance for fund investors. Now, although, Morningstar has identified over 100 mutual funds and ETFs that invest sustainably, there currently isn't a government-sanctioned regulatory body that enforces the labelling of these types of products, which can make it a little bit more difficult for retail investor to match a product to his or her investing needs. This said, Morningstar does have a global sustainable investment framework in place based off of our analysis of fund prospectuses and other regulatory filings.

As a reminder, for Morningstar to consider an investment fund to be sustainable it must be categorized in one of three ways. Number one, an ESG fund or those that use ESG risks as a central part of the investment process. Number two, an impact fund or those that seek to make a measurable change in areas like gender and diversity alongside financial gains for investors. Or number three, an environmental sector fund like those that invests broadly in renewable energy companies as an example.

Until regulation in labelling sustainable investments is implemented in Canada, Morningstar's framework can offer you very useful guidance in finding the right sustainable product or sustainable investment fund. To find out more, it's never a bad idea to talk to your financial advisor or click the link below to read our latest sustainable investment landscape report. To learn more about green bonds, click the other link to read our commentary from our colleagues at Morningstar DBRS.

For Morningstar, I'm Ian Tam.

 

Morningstar: Sustainable Investing Landscape for Canadian Fund Investors

Morningstar DBRS: Canada’s Green Bond Market Is Growing into a Global Player

 

Interested in Sustainable Canadian Funds?

Explore the landscape in our latest report here

About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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