Bonds backed by solar, clean energy, and other environmentally conscious projects are on the rise. Green bonds have typically been available to institutional investors such as funds, banks, and high-net worth investors. But there’s a new impact investment in Canada.

Source: Bloomberg

In a previous post about RRSP-eligible impact investments, I mentioned CoPower’s Green Bonds. Compared to the typical half a percent that you can earn on a savings account, the 3–5% interest from CoPower’s new Green Bonds is a significant improvement. But like all investments, it’s not easy money. Using some of the tools and concepts from Integrated Investing, here’s how we evaluated CoPower’s Green Bonds as an impact investment opportunity.*

Impact

  • CoPower uses the capital it receives through the sale of Green Bonds to finance and green energy projects across North America. CoPower lends money to clean energy developers and energy efficient companies, financing things such as solar energy projects, geothermal heating & cooling systems, energy efficiency retrofits, and LED lighting installations.
  • The companies financed by CoPower give people Access to an Essential Resource of Sustenance, which is clean and renewable energy.
  • CoPower itself is a financial intermediary – that is, a company that moves money between investors and companies that need capital. Its products themselves are financial products. CoPower helps companies manage change by providing the financing they need to grow and develop. CoPower also helps investors manage change by providing them with a product in which they can save their money and generate an investment return for future use.

Why

  • An investor looking for a steady return on their investment might be interested in an opportunity like this.
  • By comparison, equity-type impact investments tend not to provide a return in the short-term because they are often in growth-stage companies where there may not be enough cashflow to pay a return.
  • A fixed income product like these Green Bonds might be perceived to be lower risk, but they are not risk-free.
  • Green Bonds are potentially a good fit if you’re motivated by Leadership and Innovation, but are also seeking Security (i.e. something in which to save your money).

Risks

  • Your capital is locked-in for a fixed term. This is referred to as liquidity risk meaning you can’t readily sell your investment to someone else and there is no market on which to sell them (unlike public equity, public bonds, and mutual funds).
  • Getting your interest and principal back is dependent upon the success of the projects that CoPower lends to. If the green projects aren’t successful and do not generate sufficient interest to CoPower, there won’t be enough cash to pay interest on the Green Bonds.
  • If CoPower goes bankrupt before the bonds mature, your original investment is at risk. In such a scenario, investors could lose their principal investment and any interest accrued and compounded if they didn’t choose the option of simple interest paid out periodically.

Additional Observations

  • CoPower’s approach is an example of securitization – the process of turning an illiquid asset or portfolio of assets (in this case, corporate loans) into a security (bonds, although these are unrated bonds).
  • CoPower has effectively created a new type of security, divided into smaller, bite-sized pieces, and structured in a way that retail investors can access.
  • As individual investors, most of us don’t have the relationships, access, nor opportunity to invest directly in the green energy projects.

As an impact investor and entrepreneur, I have a mix of investments in my own portfolio ranging from businesses I’m directly managing including Pique Fund to equity investments in early-stage companies. Most of these investments are high-risk although I mitigate some of the risk through actively being involved in the management at some level. But I cannot have all of my investments in one risky basket. Financial products such as CoPower’s Green Bonds are interesting and could be useful to me to ensure I have some diversity in my own investment portfolio.**

What impact investments do you have in your portfolio? Please feel free to share your comments below.

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If you’re in Toronto in March, meet Bonnie Foley-Wong on March 20, 2017. Register here for the Toronto book launch of Integrated Investing and find out more about impact and impact investing as taking care of the village.

More resources and tools for evaluating impact and doing effective due diligence, check out Integrated Investing: Impact Investing with Head, Heart, Body, and Soul, available at all major online book retailers.

Download your free 24-page Integrated Investing Toolkit, by signing up to the Pique Ventures newsletter.

* Legal Disclaimer: The information provided on the Pique Ventures blog and accompanying material is for information and illustrative purposes only and does not purport to show actual results. It should not be considered legal or financial advice. You should consult with a financial advisor, lawyer, or other professional to determine what may be best for your individual needs. Pique Ventures does not make any guarantee nor other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor nor without conducting his or her own research and due diligence. To the maximum extent permitted by law, Pique Ventures disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice nor investment advice a. Your use of the information on the website or materials linked from the Web is at your own risk.

** At the time of writing, I am not an investor in CoPower’s Green Bonds. There are a number of other considerations that have not been covered in this post that affect a decision to invest.

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