The TSX advises that sustainable bonds will not be listed on the TSX but instead will be posted for trading and settled using the same infrastructure used for listed equities. The bonds will be distinguished from other securities in a variety of ways including a “.SB” extension on the symbol, an “unlisted” market value and a “Bond” product type listing. Corporate issuers will not be permitted to list bonds, with the exception of quasi-governmental corporations. The TSX's offering improves accessibility to the sustainable finance space by enabling broker dealers to offer sustainable bonds to clients with little to no operational or trading system changes.
The TSX published notice of its proposed amendments to accommodate the trading of sustainable bonds and solicited comments from market participants in July.2 The notice specifies that eligible securities will include sustainable bonds that have (1) an issue size of $Cdn$75 million or greater; (2) received a “second opinion” from an independent third-party environmental, social and governance research and rating service provider and (3) be issued in Canadian or US dollars.
The TSX's announcement comes on the heels of Nasdaq's Sustainable Bond Network (NSBN), an initiative that was introduced at the end of 2019. The NSBN states it is a global platform that increases transparency and accessibility to sustainable bonds by giving issuers a platform to showcase their sustainable bonds and related documents, reports and data. Investors also benefit from this wealth of information at their fingertips and can take advantage of search filters that display results by sustainable bond standard or sustainable development goal.
Like the TSX's new offering, NSBN's stated goal is to kick start interest in sustainable investments globally.
Why ESG matters in times of crisis
Several market players have responded to pandemic-related problems by issuing social bonds to alleviate hardships felt by various segments of the global population.3 For instance, the
In addition to creating opportunity for sustainable finance, the pandemic has also highlighted the advantages of environmental, social and governance (ESG) considerations in business planning and investment decisions, further solidifying ESG-focused strategic planning as a trusted risk mitigation technique. Morningstar reported that Q1 of 2020 saw 24 out of 26 ESG-tilted funds outperforming their traditional counterparts.4 Bloomberg also published market knowledge that ESG-tilting provided bond portfolios with an added layer of protection during the onset of COVID-19.5
Generally, businesses with strong ESG performance are better equipped to deal with expected and unexpected future risks and are consequently more resilient in the face of unprecedented disruption. As noted by
ESG landscape in
It is well established that the majority of Canadian investors are in tune with ESG issues. In fact, a 2018 survey from marketing agency Edelman found that 91% of Canadian institutional investors adjusted their voting or engagement policies to account for ESG risks.7 A recent notable demonstration of this sentiment comes from
The
Conclusion
The TSX's initiative to permit the trading of sustainable bonds signals the permanence of sustainable finance in the Canadian market. The TSX states that its goal is to provide Canadians with increased accessibility and transparency to trade such securities. With COVID-19 amplifying the consequences of inadequate risk management while also showcasing the effectiveness of ESG considerations, it is unlikely this momentum will be stalled any time soon either by companies and those that invest in them. In fact, the long-term ongoing impacts of the pandemic are more likely to drive home ESG's importance even farther than before.
Footnotes
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3
4 Morningstar, Why ESG matters in downturns, https://www.morningstar.ca/ca/news/201550/why-esg-matters-in-downturns.aspx.
5 Bloomberg Professional Services, ESG tilting provides some benefit to bond portfolios during COVID-19, https://www.bloomberg.com/professional/blog/esg-tilting-provides-some-benefit-to-bond-portfolios-during-covid-19/. The article explains that ESG-tilting mitigated some losses for bond portfolios during the early stages of COVID-19, in part because ESG-tilting typically favours issuers with higher credit ratings, but also on ESG's own accord.
6 Morningstar, ESG as an equity vaccine, https://www.morningstar.ca/ca/news/201741/esg-as-an-equity-vaccine.aspx.
7 Edelman, Edelman Trust Barometer - Special Report:
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