Investing in Green Bonds with CoPower
Want to be an impact investor? Are you conscious about your environmental footprint – for future generations? What about portfolio diversification? Is that important to you?
Increasingly, investors are looking for strategies to shield their portfolios from market downsides and provide steady returns in times of uncertainty. I’ve favoured dividend investing for part of this reason. Investors are also looking for diversification; modest returns in this low-rate environment, and learning about lower-cost products to keep more of their money. That’s good. Further still, investors are looking for investing solutions that match their values. “Going green” with your investment portfolio can be one way.
When it comes to “green” projects, like most capital initiatives, they need financing. That financing is not always available at the institutional level or via other means. Despite the availability and rise of many proven, clean energy technologies (think solar farms – China is setting up the largest in the world in fact) many small to mid-sized related projects never get funded. There is basically a financing gap – this gap is partially delaying our reliance on fossil fuels. That’s not great for our environment or our economy. That can start to change, through green investing.
I’ve always had part of my portfolio in renewable energy – it just seems like a no-brainer as our economy must evolve. For example I own a modest amount of Brookfield Renewable Partners stock (BEP.UN) and have no plans on selling it, only adding more shares over time. I invest in such companies because I believe part of my portfolio returns will come from such companies. I also believe such companies are making a difference when it comes to a cleaner environmental footprint. “Going green” can be profitable.
At the Canadian Personal Finance Conference in Toronto last year, I was surrounded by fellow personal finance enthusiasts, passionate money media experts, authors, web designers, and various financial firms keen on all things investing and money management. One of those firms was CoPower, who delivered an impressive presentation about green investing with their Green Bonds. Over the last few months I’ve read up on CoPower’s Green Bonds. For readers who don’t know about this innovative product please read on – and you can decide if this is something that’s right for you.
CoPower’s Green Bonds are private, fixed-rate bonds. CoPower pools loans to finance green initiatives. Green Bonds help power (hence the company name) clean energy projects across Canada and the U.S.
Based in Montreal, the company powers/helps finance solar energy projects, energy efficiency retrofits, and geothermal heating and cooling systems- to name a few.
At the time of this post, there are two products: 1) a 5-year Green Bond and 2) a 3-year Green Bond.
Green Bonds are backed by senior, secured loans made to clean energy projects.
While the 101 stuff sounds good I wanted to dig deeper than a website. So I reached out to CoPower’s Chief Impact Investment Officer, Trish Nixon, for some answers.
Trish, thanks for the time. What is the minimum investment?
A core part of our mission is to make clean energy project investing — traditionally restricted to institutional and high net worth investors — accessible to investors of all sizes. Currently, our Green Bond minimum investment is $5000 and bonds are available in increments of $1000 after that. This has allowed a 15-year-old, first-time investor from Alberta to invest in the same product as a major financial institution. In the future, as we grow as a company, we hope to lower that minimum even further.
At the time of this post, what is the rate of return? Can I be guaranteed of this? How do I get paid?
CoPower’s 5-Year Green Bond offers 5% annually, and our 3-Year Green Bond offers 3.5% annually.
Investors are also able to choose between compound interest (meaning that your quarterly interest payments are reinvested and you’ll receive a lump sum payment of principal and interest back at the end of the term), or simple interest (meaning that we’ll deposit fixed quarterly payments into your bank account).
While the bonds aren’t backed by a corporate guarantee, we work hard to mitigate risk and offer a product that is suitable for individuals. I’ll get into the risks in more detail further below.
Can I choose what projects I want to fund? Why or why not?
We get this question a lot. Some crowdfunding sites do allow you to invest in one particular project, and there was a time when we considered taking CoPower in that direction. It all goes back to the question of how to best mitigate risks for our investors. Investing in one project means putting all your eggs in one basket. Investing in a CoPower Green Bond, on the other hand, means investing in a diversified portfolio of many individual projects.
Can I get my money out if I need it? Why or why not? How?
CoPower Green Bonds are private investments, and you can’t easily sell them on a secondary market or redeem them before the end of the term. We haven’t found this to be a significant barrier since most of our investors use a “buy and hold” strategy to manage their investments and have liquidity elsewhere in their portfolios. Still, if you’re planning on making a large purchase like a house soon, these bonds may not be for you.
I’d also note that the upside of allocating a portion of your portfolio to private investments, is that your returns are not subject to market fluctuations. Public markets may take a nosedive, but your 5-Year Green Bond will continue paying out that fixed 5%.
What fees are involved? Meaning, what is hidden from me that I do not know about?
It depends on how you choose to invest. If you make a direct investment in CoPower Green Bonds through our online platform, there are no fees, period. The 5-Year Green Bond offers 5% and the 3-year, 3.5%. This is the way most of our investors choose to invest. It’s also the easiest way to invest.
Investing through an RRSP or TFSA is also an option, but slightly more work and more costly. To make the bonds eligible for registered accounts, CoPower has partnered with a third party called Target Capital. Target Capital charges a 0.5% capital raising fee on all Green Bonds held in registered accounts. This fee is baked into the interest rate offered on the RRSP and TFSA eligible bonds, so 4.5% on the 5-Year Green Bond and 3% on the 3-Year Green Bond. Investment advisors and financial institution may also charge fees that are outside of our control.
Detailed information on fees is set out in our offering memorandum.
What risks should I be aware of? Meaning, these bonds are not backed by CDIC like some term deposits. This concerns me.
Our bonds are backed by senior, secured loans to clean energy projects. The primary risks associated with investing in green bonds have to do with those projects and how we lend. Our offering memorandum provides full disclosure of all material facts relating to CoPower Green Bonds. Accordingly, investors should read the offering memorandum for disclosure of those facts, especially risk factors relating to the CoPower Green Bonds, before making an investment decision. But at a high level, here’s what we’re doing to manage and mitigate risk.
The first thing to note is that we finance projects not companies, thereby shielding investors from venture risk. Your returns are coming from the fixed loan repayments that come from the sale of clean energy generated or energy saved, not from the performance of the companies developing the projects or performing the installations. When evaluating the likelihood of loan repayment we look at the project counterparty, in other words, the end payer. For example, a solar project in Ontario has a 20-year power purchase agreement with Ontario’s Independent Energy Services Operator. In the case of an condo LED retrofit project, the counterparty is the condo corporation and individual unit holders who pay via their regular condo fees.
Second, we lend to portfolios of clean energy projects on the low-risk end of the project finance spectrum, and we never expose Green Bond investors to construction risk. All projects that back the bonds use established technologies and are already built, operating and generating steady revenues, lowering the likelihood that technological malfunctions could disrupt loan repayments. Should a widespread technical defect or weather-related event affect the performance of the projects severely enough to affect the project partner’s ability to make loan repayments on the portfolios, there are measures in place to protect investors’ returns. For example, we require our project partners to establish debt-service reserve funds, and part of our due diligence process involves ensuring that proper warranties and insurance are in place on all projects. As the senior lender, we also have the right to step-in to either run or sell projects in an event of default.
Great to know. Can I invest inside registered accounts (e.g. TFSA, RRSP, RESP, other) to shelter interest income? This would be good. So, why or why not?
Yes, you can! CoPower Green Bonds are eligible for all types of registered accounts (TFSA, RRSP, RESP and RRIF). As mentioned above, the rate of return offered on bonds held in registered accounts is lower, as well your financial institution may charge additional fees, and fees may vary by institution.
Whether or not it will be more profitable to invest with CoPower directly or through a registered account depends on a couple of factors, for example, your tax bracket and desired investment amount. Our team is here to help you compare options and figure out the best route.
Who can I talk to, to learn more, so I know I’m making a good investment decision? My financial advisor maybe?
You should certainly seek advice from a financial advisor or planner who you trust. There are a growing number of wealth advisors who specialize in responsible and impact investments. The Responsible Investment Association is a great place to find such an advisor. If you prefer to manage your own investments, there are also financial planners like the Sustainable Economist who can help provide education and advice. Our team is happy to connect directly with your advisor or planner if you’d like to make an introduction.
Going green” directly with your investment portfolio is not for everyone. I can appreciate many investors are skeptical of the long-term benefits of ethical and impact investing outside indirect ownership using low-cost funds for example. I’m not one of them. While it appears traditional infrastructure and capital lenders haven’t adjusted to opportunities presented by a cleaner economy – individual investors don’t have to wait if they don’t want to. CoPower is innovative with their Green Bonds – an opportunity to put this fixed-income inside your RRSP and the ability to invest in growth-related initiatives that should pay you a modest return above other bond products.
Thanks again to Trish Nixon from CoPower for answering my questions. Certainly an interesting company offering an innovative investing choice.
This post has been brought to you in partnership with CoPower. All thoughts and questions to CoPower are my own.
What’s your take on green investing or Green Bonds?