Changing your portfolio one LED light bulb at a time. Getting your investments into the green.

I would get this question quite often when I was an adviser with Tangerine.

‘Do you have any Green investments?’

Of course when one offers broad-market index based portfolios the investment is environmentally agnostic. It makes no judgement on how the company operates or how it makes its profits. Company behaviour will be determined by the regulators and shareholders and the company’s board and management. And largely the demand for the products or services will be determined by the consumer – that’s you.

Now I would certainly direct clients to the green investment options in Canada, it’s not up to me to tell you to leave your values or principles at the door, but I would also suggest that one might have a greater chance to effect change by addressing the way they live compared to how they invest. Largely, lifestyle choices trump investment choices when it comes to having a positive impact on the environment. To be consistent and transparent, I still believe that to be true.

That said there is an investment option that appears to fit the bill for enabling that change. That investment is the CoPower Green Bond.

Greenbond Logo

Yes, it’s a bond, and that means that an investor is loaning money that is used by developers to fund clean energy infrastructure . For that loan, an investor would be paid 4% annual for a 4-year bond and 5% annual for a 6-year bond. In today’s low-rate environment that’s a very good rate of return.

There are 3 types of projects that your monies (your loan) will fund.

CoPower Green Bond Portfolio Investments Table (Oct 2018)We might consider this a truly green investment because the at the core (geothermal pun intended) we have Canadians who are making a choice to ‘Go Green’, or their version of green. As an investor, you are enabling those projects. Your monies will fund projects that will reduce CO2 emissions, and perhaps reduce polluting particulates that are a by-product of traditional energy generation. You will be an ‘investor agent of change’.

These green projects are very successful and there is great demand from potential partners to start more geothermal, solar and LED bulb replacement projects. The demand is there, the projects simply need more funding. The more Green Bonds that can be issued, the more projects that can be funded. Quite simply, they need your monies, your loans.

If you look into the projects that are funded you’ll discover that they are more grass-roots and small-scale. Individual home geothermal conversion projects don’t attract interest and traditional loans from large financial institutions. These are individual Canadian homeowners who are largely being funded by individual Canadians (that’s you, potentially). What might be appealing to many is the small scale and clear transparency in where your monies are directed and how the effect can be measured.

How Do You Get Your Green Bonds? 

You can sign up through the CoPower website where you would complete an online application. As part of the process you would also have a phone conversation with a CoPower investment representative to ensure suitability and to ensure that you do understand the investment and the associated risks.

You can also obtain the CoPower Green bonds with the discount brokerage Questrade and through Olympia Trust. Keep in mind that when you access the bonds through a third party, those institutions will charge fees. Ensure that your investment is large enough (the returns are large enough) to more than compensate for any fees that are applied. Through those third party options you can invest in RSP and TFSA and RIFF accounts.

How is CoPower different from a bond fund? 

A SRI Socially Responsible Investment bond fund will hold dozens to hundreds of individual bonds. As a mutual fund it will change in price every day. There are management fees associated with mutual funds as well. The CoPower bonds are offered directly to you and carry no fees. You receive your interest payments and the effect of compound interest in full.

You will be owning an individual bond and you will be required to hold the bond to maturity. That means that if you purchase a 6-year bond, you will have to wait for 6-years to see that return of your initial investment amount. You may choose to have the bond pay you your interest payments ‘along the way’.

There are a couple of advantages of holding individual bonds. First is the absence of fees. There are no fees to eat into your interest or your original amount invested. Again, in a mutual fund, the fees will eat into your returns, and that can have a significant impact when we are dealing with the modest returns of bonds. A second advantage is that the investor will not see a change in price. The investor will not be ‘spooked’ by volatility.

There are additional risks of course with an individual bond as the income is completely reliant on those individual projects. A bond fund will reduce the concentration risk by diversifying the investment across many bonds, companies and sectors and even countries.

That said, according to CoPower, none of the bonds or projects have been delinquent on payment from inception date of 2013. Their website will further address these risks. As always with any investment ensure that you understand those risks and are comfortable with those risks.

You might see some nice green in your portfolio. 

Investors might quite simply look at this as a very reasonable investment based on the returns potential, irrespective of the green mandate. On this page from the RIA (Responsible Investment Association) that shows the investment fund options in Canada, we see that the average return for an 5-year SRI bond fund is 2.55%. The benchmark bond return for non-SRI funds in Canada is 3.31% over 5 years. Those returns are potentially or likely to be less moving forward as bond yields have fallen over the last 5 years.

Once again, the CoPower bonds offer 4% or 5% annual depending on the term.

I hold a 1-5 year corporate bond ladder fund (CBO from iShares) and see that the total return for that fund is 1.81% over a 5-year period. Yikes. I also hold a core broad based bond fund that has returned in that 3% annual range over a 5-year period.

You can pay me now or you can pay me later. 

With the CoPower bonds you can choose a simple interest bond and that will pay you interest on a quarterly basis. For example if you held a $10,000 bond that pays 5% annual interest, your quarterly payment (to your linked bank account) would be $125.

If you choose a compound interest bond, that interest will be reinvested for you. You earn interest on your interest .

How much can you invest? 

See the CoPower site and FAQ’s. The minimum investment is $5,000 with the amount you can invest dependent upon your investment type. You do not have to be an accredited investor to invest, but if you are that may allow you to invest greater amounts.

If you’re looking to add some green to your portfolio you might join the growing list of Canadians who invest with CoPower and who power those projects. You might use the CoPower Green bond in concert with your own self-directed SRI ETF or Mutual Fund portfolio. Wealthsimple clients who hold the socially responsible portfolio might be interested in holding Green Bonds in their portfolio as a fixed income component accessed directly through Co-Power or Questrade. Of course, you cannot hold the Green Bonds directly within that Wealthsimple account.

Please keep in mind that this blog post is not a recommendation. Ensure that you understand all investment risks. And while I do not accept monies for feature posts please click here for more about Dale and ‘how I might get paid’ disclosures. I have no affiliate marketing arrangement with CoPower.

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2 thoughts

  1. I am a DIY investor with a small holding of CoPower bonds. While I wholeheartedly support the premise of lending to green energy, the “head over heart” decision to go ahead with the investment was not easy or instant.

    The big problem for me was that CoPower bonds are not rated. It took some reflection to decide that the risk was acceptable:
    1. I decided to limit exposure to a small fraction (~1%) of the total investment portfolio which I manage;
    2. I studied the business model carefully, and decided it offered reasonable protection. CoPower does not finance the construction of green energy production. Therefore it assumes no “build risk” (danger of over-runs). Instead, it lends the unpaid capital debt of an owner/operator, much like we take out a mortgage on a house.CoPower gets two different forms of collateral: (a) the revenue stream from selling the green power; and (b) the power producing asset itself.
    3. There was also a purely subjective element in the decision. One of the principals of CoPower is Trish Nixon, daughter of Gordon Nixon, a recent President and CEO of the Royal Bank of Canada (RBC) and now Chairman of the Board of BCE Enterprises (Bell Canada). More to the point, and to the best of my recall, RBC is a significant stakeholder in CoPower. In the absence of a bond rating, there was a subjective judgement that,”if RBC is investing its own money, it might be safe to invest my own.”

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