City of Ottawa Green Debenture - Treasurer's Information Report 2019

City of Ottawa Green Debentures share the same characteristics as conventional debentures and are ranked concurrently and equally in respect of payment of principal and interest with all other debentures of the City.

The City of Ottawa has developed a Green Debenture Framework under which it issues Green Debentures. The Framework identifies eight eligible categories to which bond proceeds may be directed:

• renewable energy
• energy efficiency
• pollution prevention and control
• clean transportation
• sustainable water management
• sustainable management of natural resources
• climate change adaptation and resilience
• green buildings.

The net proceeds of each Green Debenture issued under the Framework will be used to finance, in whole or in part, capital projects that promote environmental sustainability across the City. Specific objectives for these projects will be to mitigate and adapt to the effects of climate change, reduce greenhouse gas (GHG) emissions, and promote the transition to a low-carbon economy.

The City has engaged Sustainalytics, an independent sustainability rating firm, to provide a second opinion on its Green Debenture Framework and the framework’s environmental credentials as it relates to Green Bond Principles.

Sustainalytics is of the view that the City of Ottawa’s Green Debenture Framework is aligned with the four pillars of the Green Bond Principles 2017, which addresses use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. Based on the above considerations, Sustainalytics is of the view that the City of Ottawa’s Green Debenture Framework is robust and credible.

On November 2, 2017, the City of Ottawa successfully launched an initial 3.25% November 2047 Green Debenture issue to fund the Light Rail Transit (LRT) Stage 2 project in the amount of C$102 million. The issue was priced to yield 3.259% with a November 10, 2047 maturity.

• This was Ottawa’s inaugural Green Debenture issue and marked the first municipal Green Bond issue in the Canadian market.
• The issue was over-subscribed, with orders from 25 investors
• Strong participation from Asset Managers, Insurance Funds, Government Agencies and Pension Funds
• Investors with Green mandates and/or UN PRI signatories represented 96% of overall sales
• Demand was primarily concentrated in Canada with 99% placed domestically

2017 investor distribution

On July 22, 2019 City of Ottawa priced a successful C$200 million re-opening of its Green Debenture due November 10, 2047 to fund the LRT project:

• The re-opening marked the second Green Debenture from the City of Ottawa and the 5th Green Bond offering in Canadian municipal market
• Over-subscribed issue, with 33 investors participating
• Well-diversified order book with Asset Managers, Pension Funds, Insurance Funds and Government Agencies.
• Investors with Green mandates and/or UN PRI signatories represented 89% of overall sales
• International investors represented 10% of the final deal

2019 investor distribution

The net proceeds of 2017 Green Debenture were applied directly to the LRT Stage 2 project, as per By-Law 2017-355. As of October 31, 2018, 100% of proceeds had been disbursed.

The attached Schedule of Use and Management of Green Debenture Proceeds (Appendix A) and Internal Compliance Review Report (Appendix B) confirm that the City of Ottawa has complied with the material provisions of the Green Debenture Framework.

The net proceeds of the 2019 Green Debenture were applied directly to LRT Stage 1 – Confederation Line project and Stage 2 LRT project, as per By-Law 2019-272. Reports on use and management of proceeds and a compliance review will be provided in subsequent updates.

Project overview

The City of Ottawa’s LRT Confederation Line - Stage 1 project is expected to provide a more accessible connection to the Central Area. The LRT Stage 2 expansion builds on the City’s Confederation Line investment by extending light rail an additional 30 kilometres, bringing 70% of residents to within 5 kilometres from an LRT station and connecting the City’s communities to the east, west, and south. In their unanimous approval of the 2013 Transportation Master Plan, Ottawa City Council prioritized the implementation of Stage 2. The LRT extension is not only part of an official, integrated land-use plan and the City’s Transportation Master Plan, it is also in line with Federal and Provincial commitments for transit expansion.

Estimated environmental benefits

The business case for this project identified the following benefits:

• Increased ridership: Total system ridership is expected to increase to 164 million trips per year as result of Stage 1 LRT. Stage 2 LRT is expected to increase ridership by additional 10 million plus trips per year by 2031
• Decreased congestion: majority of buses removed from downtown street; reduction of approximately one sixth of total vehicle kilometres
• Improved mobility: travel time savings and improved access from extended areas of the City
• Vehicle operating cost savings: fuel and maintenance
• Public health: benefits associated with reduction in harmful emissions; reducing contributions to climate change; reducing the number of collisions; mobility options for those who rely on public transit for access to health care
• Land use: more compact urban form; increased clustering and accessibility
• Economic development: increased employment; GDP and tax contributions
• Environmental Benefits: reduction in the greenhouse gases (GHGs) and critical air contaminants (CACs), which have direct implications for the overall sustainability of urban growth and direct consequences on the health of residents. It is estimated that Stage 1 – Confederation Line would reduce GHG emissions by 94,000 tonnes and CAC by 4,600 tonnes by 2031; Stage 2 would reduce the GHG emissions by over 110,000 tonnes and CAC by over 3,000 tonnes by 2048.

Project status update

Stage 1 LRT - The O-Train Confederation Line Light Rail Transit system opened in September 2019 providing high frequency train service between Blair and Tunney’s Pasture stations, and through downtown. City staff is collecting performance information from different service areas; however, the evaluation measures outlined in the Business case cannot be measured presently, as a longer evaluation period is required.

Stage 2 LRT – Preparatory activities are currently underway on each O-Train extension to facilitate the commencement of Stage 2 construction activities in 2019. Stage 2 will extend the O-Train system farther south, east, and west, adding 44 kilometres of new rail and 24 new stations by 2025.

Future issuance plans

The Green Debenture Program will be an ongoing program of the City of Ottawa. The City launched its first Green Debenture on November 2, 2017. On July 22, 2019 City of Ottawa priced a successful re-opening its Green Debenture. Total issuance to date is $302 million. The City is planning to issue approximately $150 million in Green Debentures annually from 2020 to 2024.

Contact us

Finance Services Department
100 Constellation Crescent, 4th Floor West
Ottawa, ON K2G 6J8
Tel: 613-580-2424

• Mr. Mark Martin, Manager Treasury, ext. 21307
• Ms. Vera Torkot, Senior Investment Officer, ext. 28400
• Mr. Dan Bate, Senior Investment Officer, ext. 21310

As of December 31, 2018, net proceeds of the Green Debenture priced November 2, 2017 and maturing November 10, 2047, we allocated to the following project in compliance with the Green Debenture Framework and in accordance with By-Law 2017-355. 

The proceeds were used to finance spending on the project. The unspent balance as December 31, 2018 is $0.00. An internal compliance review confirming the use of proceeds is in Appendix B.

Original Document authorized by City Treasurer and Manager of Treasury

Compliance has examined the City of Ottawa Green Debenture Framework and supporting reports prepared and submitted to Council for the issuance of the Green Debenture dated 10 November 2017 for $102,000,000, as well as Schedule of Use and Management of Debenture proceeds. These reports were prepared by the Treasury Branch and overseen by Mark Martin, Manager, Treasury Branch, Corporate Finance Service.

We examined the SAP records to confirm the accuracy of the figures presented in the reports. We also examined the expenditures on a test basis and inspected documentation to confirm compliance with the terms and conditions of the City of Ottawa Green Debenture Framework. 

In our opinion, there is reasonable assurance that the reports prepared for City of Ottawa Green Debenture Framework are free from material misstatements, that the funds received from the Green Debenture issue have been spent in accordance to the requirements stipulated in the Framework, and that the City of Ottawa has complied with material provisions of the Framework.

Compliance work completed by Mr. Andrew Kerandi, Compliance Consultant, Compliance