Green Bonds: CoPower Green Bonds Review

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Green Investments or Eco-Investing

There is increasingly more and more appetite for environmentally friendly investments.  Investors want to be able to make a difference for the planet and at the same time make money with their hard earned dollars.  A growing range of green or eco-investment products is making it easier for investors to make choices that align with their values.

According to a 2015 report by the Responsible Investment Association more and more people are interested in green investments:

over $1-trillion of Canadian assets were managed utilizing responsible investing strategies–a 68 per cent increase from two years earlier, when the figure was closer to $600-billion.

Yes, you read that right…$1 TRILLION DOLLARS!

It’s not only individual investors who are ‘green investing’, it’s actually primarily institutional investors like banks and pension funds.

What Are Green Bonds?

One of the main products investors are adding to their portfolios is green bonds.

Let’s review first what a bond is.

A bond is a fixed income investment whereby an investor essentially lends money to an entity like a company, government, or project for a defined period at a fixed rate.

A green bond is basically like any other bond, but instead of just any sort of business or activity, the money you lend supports eco-friendly initiatives.  According to Investopedia, a green bond is generally intended to support sustainable, climate change-related projects.

CoPower Green Bonds Review

CoPower founded in 2013 with the mission of helping everyday investors put their money to work for clean energy projects. The company originated in Montreal (seriously, again, everything creative comes from Montreal!) but now has offices in both Montreal and Toronto.

Since launching their first Green Bond in 2016, (before that they had private green funds), they have been helping satisfy the demand for green investments through their online platform.  CoPower has attracted more than 600 investors so far and has raised more than $30 million through their Green Bonds and earlier funds.

Currently, CoPower offers several options with their green bonds. As an investor, you can choose a bond with a 6-year term that provides a 5% annual interest rate or a 4-year bond with a 4% annual interest rate.

The bonds are backed by loans the company makes to distributed clean energy and efficiency projects which are typically small and focused on local buildings. CoPower’s founders created the business after seeing that these smaller projects usually faced problems accessing infrastructure financing from traditional infrastructure lenders more accustomed to financing large centralized power projects.  So far, CoPower has made loans that have supported LED retrofits in more than 300 condo buildings, 758 residential geoexchange installations for homes in Toronto, Kelowna and Montreal and several community solar projects in rural Ontario.

CoPower does their due diligence when selecting who to loan money to.  Here’s some more information on how CoPower selects the green projects to invest in for the CoPower Green Bonds.

The minimum initial investment amount is $5000. Any additional investment after that is added in increments of $1000.  You have the option of receiving quarterly simple interest payments via direct deposit into your bank account, or you can choose to compound (re-invest it) and be paid out at the end of the term.  In both cases, the principal is repaid at maturity (either after 4 or 6 years).  One neat thing is that you can see how many tonnes of CO2 are avoided annually with your investment.

How to invest with CoPower’s green bonds?  You can sign up and invest directly through their online investing platform, although interest earned on investments made directly in a non-registered account will be taxed as income at your marginal rate.  Only residents of Ontario, British Columbia, Quebec, Alberta, Saskatchewan, Yukon, Manitoba and Nova Scotia are able to invest directly through CoPower’s online platform.  If you do not live in these provinces or territories, you may be able to invest through another exempt market securities dealer or registered investment advisor. You can also sign up with CoPower’s mailing list to be notified when bonds become available in your province.

Alternatively, you can also hold CoPower’s green bonds in your RRSP, TFSA, or RESP through Questrade or Olympia Trust.  Here is the step-by-step on how to hold CoPower’s green bonds in your Questrade account. Other institutions may hold them as well, but this would be on a case by case basis.

CoPower’s FAQ says they do not charge fees to investors, so how do they make money?  CoPower makes money by charging an origination fee (approximately 2-3%) to the borrower. In addition, CoPower makes money from the spread between the interest earned on loans and the interest paid to investors.

How Much Does Investing with CoPower Cost?

If you invest directly from the CoPower platform, it is free to invest.  However, you have to be cognizant of the taxes you will have to pay.  With income generated from bonds, it is the same as interest income, and taxed at your marginal rate.  For further information, check out my guide on tax efficient investing in Canada.  If you pay with cheque or a wire transfer instead of a pre-authorized debit, though, you may be charged $25.

If you use Questrade to hold your CoPower Green Bonds, Questrade charges a one time $75 fee (+tax) to purchase them (and as a reader indicated, another $75 + tax at redemption.  Questrade  also charges a $25 (+tax) holding fee every quarter, unless you have an additional $15,000 in public securities held at Questrade, in which case the quarterly fee is waived.  

CoPower has a nice RRSP calculator to help you decide which offers you more money: holding the Green Bonds in a registered account at Questrade and paying Questrade’s fees or investing directly through the CoPower platform and paying taxes at your marginal rate.

You can also sign up with Olympia Trust to hold the CoPower Green Bonds too.  To open an account with Olympia Trust it is $150 and this is charged annually (check out the Olympia Trust fee schedule here)

Here are some pros and cons of investing with CoPower Green Bonds that I came up with:

CoPower Green Bonds Pros

• They allow you to incorporate green investing into your portfolio and have more transparency about how your money is being used.
• The rate of return is really good for a bond (4% or 5%)
• It is a green investment and you’ll sleep well knowing that your hard earned money is going towards reducing CO2 emissions
• It is free to invest if you invest through their platform (though you get taxed at marginal rate)
• They have a relationship with Questrade (and there’s a $75 one time fee to buy and sell ($150+tax) if you hold at least $15,000 in your registered account- which, for a $5000 investment, works out to a 0.75% “MER” for their 4 years Green Bond and 0.50% “MER” for their 6 years Green Bond).  Obviously if you are investing more than the $5000 minimum, the “MER” gets lower.
• You have the option of having your interest paid out to you quarterly or compounded (and it’s as easy as a click of a button).
• Distributions are quarterly
• It provides diversification for the fixed income portion of your portfolio
• You have 2 business days to cancel your Subscription Agreement to purchase the Green Bonds if you change your mind

CoPower Green Bonds Cons

• It is not liquid. Once you buy the green bond, you have to hold it to maturity (4 or 6 years is quite the commitment).
• The other registered account option is Olympia Trust and this company charges $150 annually which is high.
• It is not CDIC-insured meaning there is no guarantee you will get your principal (initial investment) back.
• The performance of the underlying loans may affect the certainty of getting your principal back.
• Changes in government policy could affect CoPower’s ability to continue making loans.
• It is not traded on the public market and therefore there is no credit rating so the risk is less clear

The Bottom Line:  CoPower Green Bonds

This is probably not for everyone because of the illiquidity (4 or 6 years) of this green investment.

However, if you believe in supporting the environment and putting your money where your mouth is; if you value alternative investing and socially responsible investing, if you are investing a small portion of your portfolio and it wouldn’t faze you if you didn’t get all of your principal back; and if you want a high interest rate (4 or 5%) and don’t need the liquidity then I think investing in CoPower’s Green Bonds could be a good fit.

Have you invested in green bonds or alternative investments/ green investments?