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?
If so, read on and check out my latest post about CoPower Green Bonds here!
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?
Let’s be clear. This is not a very good investment opportunity.
First off, the fees will kill you. To hold an exempt market security, CoPower is suggesting an Olympia Trust account. Account opening fees are $150+tx, plus a transaction fee of $75+tx to buy, so there goes your first year of interest and then some.
5% is nowhere near enough reward for this risk. CoPower is taking equity stakes in these projects, then loaning them cash from their bond vehicle. All the upside is theirs if the project is a hit, none of the risk if it fails. These would serve much better as equity investments.
Plus, they are withdrawing any balance sheet buffer as they go as a fee (90% of the NAV each quarter!). So in the event of default, there is no cash buffer, as it’s already been expensed. They are paying themselves with your money to borrow your money.
Plus there is very limited liquidity. If it starts to go belly-up, you’re done. 0% back.
All that for a measly 5% return?
I think it depends Pete. There is risk with any investment. What are you comparing this risk to? Just curious, not saying you are right or wrong. Cheers.
There is risk, of course, in any investment. And with that risk, should come some reward.
So for any exempt market security, where there are very limited reporting requirements, limited liquidity and a high concentration risk, 4-5% is simply not good enough for a 4-6 year lock-up.
I can get a yield of 6.8% from BEP and have all the liquidity in the world along with my feel good factor, not to mention a long history of solid management expertise.
Hell, I can get 3% from US treasury bonds and if they fail, we have bigger problems.
Then there’s the structure. First thing you should be looking at with an EM product is the related parties. If they’re able to buy from themselves or lend to themselves, steer clear. A quick look in the OM and -bang!- there it is. Affiliated parties. So, interests are immediately not aligned. If CoPower owns all the projects they are loaning money to, if they get one that’s a big hit, then they are all set. They keep the equity, pay back the interest and are happy.
If one fails, then that’s all on the investor. So as an investor, you need ALL the projects to stay in the black. CoPower doesn’t.
And what you’d want is a solid balance sheet (you know, say from National Bank 2018 preferred shares paying 4.95%, with full liquidity) to back it up. Only any difference in the ‘spread’ (interest rate charged on loans vs interest to investor) which might start to shore up the balance sheet is taken as fees by CoPower.
Plus, lest we forget, I’ve already lost my first year’s interest to fees.
So why on earth would I put my money with these guys over something else?
These are very fair investor concerns Pete and I can potentially raise those with them (CoPower) in future. I’m all for transparency.
Just ran across this investment and company today. While interested the lack of CDIC backing is concerning,
Good to hear from you Simon. Yes, always some risk with investing.
Thanks for the post on green investing. I have a section in my IPS detailing what I consider unethical investments to avoid but currently invest in fossle fuel companies (Royal Dutch Shell, etc) as I believe the technology for alternative energy to replace all fossil fuels does not yet exist. As I I know you are a fan of REITs and dividend growth investing you might want to check out Hannon Armstrong (NYSE: HASI). They provide debt and equity financing to renewable infrastructure which has long term predictable cash flows. Currently yields ~5.7% and their portfolio/asset base has grown 50% from this time last year.
Interesting stuff Ray. Thanks for the information on Hannon.
It’s an interesting topic regarding to how your ethical opinions affect how you invest. I myself am reluctant to buy stocks like MO and PM as I feel that I am making money by hurting people.
What I value does influence how I invest. I couldn’t buy those MO or PM stocks myself. I just don’t believe in that stuff…even though those companies make big, big bucks. I’m missing out? Sure, a bit, but I won’t invest that way. I have to pick some battles though.
This doesn’t make sense — at all. Especially for a smart guy!
When you buy a share of cancer causin’ Philip Morris or frankenfood makin’ Monsanto, exactly 0% your money is going directly to said company to fund its diabolical schemes. It’s going to some fund manager in New York or some day trader in Taipei or even back to the company itself. Those “evil” businesses took their money and ran a looooong time ago. All you are doing is buying the PRICE of the company; you own the public’s perception of price, not the company.
The whole ethical/unethical narrative is a bit of a red herring, anyway. Plenty, if not all, big oil companies are developing renewable resource ventures; they have the big money to bring these to fruition far better and with far greater impact than some rinkydink LED retrofit scheme. Should we squash that potential just because they are currently labeled “dirty”?
And what of all your precious big bank stock holdings? Have a look through their fund specs, I’m sure you’ll find they invest in plenty of companies which fit your “don’t believe in that stuff” judgement (e.g. there are plenty of RY funds which hold stock of Honeywell International…which is involved in nuclear weapons production). Will you also be eschewing your future CPP payments — and refusing to make any further CPP contributions — because of their $1 billion in tobacco holdings? Kinda like having a meth dealer for a best friend, right? Do you have an acceptable level on the Dirt-O-Metre?
Never forget, investing is first and foremost about money. Period.
This is why, as I stated, I allocate my money in a dichotic fashion: buy local (cuz that’s where you can make the most difference) and invest non-local (cuz that’s where you can make the most returns). To paraphrase Angelina Jolie, “If they want to pay me $10 million for a movie, let them. I can do much better things with that money than Hollywood can.”
Also never forget, what is now ‘unethical’ was once ‘ethical’. Except banks, they’ve always been unethical. 😛
My friend…it’s hard to avoid investing in all “sin” stocks.
If I own VYM, and I do, then yes, it’s going to have some “sin” stocks in there. Including defence stocks, etc.
I recognize to earn modest returns I need to invest in those companies. What I am saying is, I’m not going out of my way to keep an entire portfolio of McDonald’s, Restaurant Brands International, Lockheed Martin, or Philip Morris on the books.
Big banks are not immune. The pension plan is not “green” either. To me there is a big difference in actively buying more “sin” stocks than not.
I recognize any type of investing is absolutely about making money, ideally for many investors regardless of the path, lots of it.
re: I’m not going out of my way to keep an entire portfolio of McDonald’s, Restaurant Brands International, Lockheed Martin, or Philip Morris on the books…To me there is a big difference in actively buying more “sin” stocks than not.”
This is kinda late but a good addition to the discussion, from my perennial favourite, Cullen Roche:
There’s No Such Thing as a “Sin Stock”
He has the exact same message as I’ve stated (perhaps more believable from a successful financial expert and millionaire?):
“I say if you want to be virtuous then make as much money as possible and do good things with those funds…as opposed to potentially leaving those funds in the hands of people who might not have the same virtues you do.”
“If you really want to hurt a public company (which already has access to liquid markets by simply being on a public exchange) then the place to hurt them is in the real economy. If you really want to hurt a public company then protest their service in the real economy by refusing to buy their goods and services. Hitting them in the secondary market where they probably don’t finance their operations in the first place is an incredibly inefficient way to protest a company you detest.”
Why would I invest in a private “green” company for a 5% return when I could invest in a private “dirty” oil well company for a 50% return? I can utilize that 45% difference in the real economy with a greater and greener impact than my money would have in the straight solar investment.
In other words, buying or not buying “sin” stocks has zero effect on their business performance, but it does have an effect on your portfolio performance. Buy their stock, don’t buy their product (e.g. facebook).
“I say if you want to be virtuous then make as much money as possible and do good things with those funds…as opposed to potentially leaving those funds in the hands of people who might not have the same virtues you do.”
Great in principle but also potentially destructive since you continue to feed the beast 🙂 Take your e.g., Facebook. I don’t really like their product and I wouldn’t buy the stock either but then again, I own all stuff indirectly if I own VTI or VUG ETF and I can’t avoid feeding the machine through some degree via index investing.
Although institutional investors have a much larger upper-hand I continue to believe the retail investor can vote adequately with their wallet – therefore changing the economic landscape over time. So, if more people invested in “greener” pastures/companies, more often, I have a decent level of confidence the dirty stocks would slowly disappear. Do you not believe if most people on our planet stopping smoking, there would be no big tobacco companies making billion-dollar profits? These companies exist because there is a demand for their products. Take away the demand and the supply curve follows.
As long as there is ample greed in this world – there will always be dirty companies and people that want to make loads of money off them as well. You’ve have to turn centuries of trade and economic principles upside down to alter this paradigm. Ain’t gonna happen in my next 40 or so years on this planet. 😉
re: “Currently, our Green Bond minimum investment is $5000 and bonds are available in increments of $1000 after that.”
I read somewhere a very long time ago that a person could create a much larger “green” footprint by investing money in their immediate surroundings rather than in things like ‘Green Bonds’. Wondering if any ‘green’ investors have done any kind of analysis of this sort. The same kinda thing as with charities, just how much of that $5,000 is actually contributing to greenifying the planet? I like to take the role of the dichotomist investor — invest dirty, live green…buy local, invest multinational…you get the idea.
As for the projects…(China excluded) solar is a bogus industry. The government can’t subsidize both producer and consumer! Just ask Mr. Tesla where his companies would be without the jumbo government cheques. I’d be much more interested in a ‘Green Bond’ which funded a thorium salt reactor instead of playing around with these Mickey Mouse projects.
Fair points SST, you have some deep thoughts!
The thing is though, this type of private investing was not commonplace, until recently. I mean, now you have Green Bonds, RealtyShares, P2P Lending, and much more alternatives for investing. This is overall, great. Gone are the days of buying a high-priced mutual fund because your big bank told you to do so. For the most part 🙂
I suspect we’ll see more private equity lending platforms for bigger capital projects in the future; CoPower or otherwise. The fintech wave will push that paradigm if I had to predict it 🙂
I don’t really care. The green bonds are giving a pretty decent return (5%) and reducing greenhouse gas emissions. I’m looking at their site and for every $5K invested looks like I can reduce a ton or two a year of emissions. Looks like the energy efficiency work has some interesting $ opportunities and do go – it’s not one or the other, it’s both. I get a return and do some good.
Subsidies, doesn’t coal and gas get subsidies. I don’t get your point.
Personally, I’d rather a bond that invests in real projects that actually work and not on some random start up technology like salt reactor. LED light bulbs, wind and solar really work – let’s just make it happen
@Taylor T — Oysh. Too much to say about your post. Seeing as how September 8th is International Literacy Day, why not engage in some learning type reading! 🙂
(Full Disclosure: I am a literacy tutor).
re: I suspect we’ll see more private equity lending platforms for bigger capital projects in the future; CoPower or otherwise. The fintech wave will push that paradigm…
I doubt it. As it stands now in Canada, any and all private equity/exempt market investments require at a minimum some form of face-to-face interaction, as demonstrated by CoPower: “we’ll schedule a quick “Know Your Client” phone call…”. Current fintech deals in point-and-click public equity. I doubt the money sector regulations will change quickly enough to adapt (they may even prefer to stay antiquated).
C’mon now 🙂 Could you have predicted the FinTech wave of companies? Maybe on a broad scale but likely not the range of products and services. Who really knows what the future holds when it comes to the economy? I would however argue more opportunities for private investing will occur. Will I be right? Will I invest this way? Who knows. My crystal ball is always very cloudy.
I love this article. We need more investments in clean energy projects and need to address climate change through our invnestment portfolios. We need more CoPowers out there!
Thanks James. Give them a call and find out more if you wish!