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BMO Exploring Transition Financing for Carbon-Capture Project

Esteban Duarte and Divya Balji

(Bloomberg) -- Bank of Montreal is exploring transition funding for a carbon-capture project as it seeks to mobilize C$400 billion ($301 billion) for sustainable finance by 2025.

Transition financing helps companies finance the move to less carbon-intensive operations. Last week, Credit Agricole CIB became the world’s first commercial bank to issue a transition bond.

“We are talking to a number of people about that but I don’t have a project that I could announce,” Dan Barclay, chief executive officer and group head of BMO Capital Markets, said in an interview in Toronto. It’s not clear if BMO would help finance the project or underwrite the debt.

Canada’s financial industry is pushing to allow its energy sector to tap sustainable financing to back projects that cut carbon emissions. Some banks already use issues with the environmental, social and governance label to do the same. Global discussions are underway to set standards for financing that meet environmental, sustainable and governance goals.

Canada will likely see its first transition financing in 2020, Barclay said.

“I am very hopeful to see something during fiscal year ‘20,” Barclay said on the sidelines of Bloomberg’s Canadian Sustainable Investment Forum in Toronto. “I don’t have one yet, to put on the table, but I’m hoping to, soon.”

Credit Agricole sold a 100 million euro ($110 million) transition bond which will finance the switch from coal-fired power to natural gas in Chile, and convert maritime shipping to natural gas from bunker fuel, the lender said in a Nov. 27 statement. The 10-year bond, privately placed with AXA IM, will pay a coupon of 0.55%.

“Green is a certain type of financing but what I think could be more appropriate for Canada is transition bonds,” Paul Bowes, country head at FTSE Russell Canada said at the forum. “This is not a gold rush, this is fundamental.”

Earlier this year, BMO set new targets for sustainability and inclusivity that included doubling the Toronto-based lender’s sustainable finance. Of the C$400 billion, the bank aims to provide C$150 billion in capital to companies pursuing sustainable outcomes.

The bank’s global asset management arm already advises or oversees about C$150 billion of sustainable assets and the bank has raised about C$20 billion in capital for sustainable finance, said Barclay.

“This is one of the defining issues over the next decade,” said Barclay.

To contact the reporters on this story: Esteban Duarte in Toronto at eduarterubia@bloomberg.net;Divya Balji in Toronto at dbalji1@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe

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