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Hydro One publishes sustainable financing framework

IMAGE: A power line
Courtesy Hydro One Limited.

Hydro One Limited has published its Sustainable Financing Framework, becoming the first utility in Canada to pursue green financing in such a manner.

It allows Hydro One (H-T) and its subsidiaries to issue sustainable financing instruments, such as sustainable or green bonds, and allocate the net proceeds to investments in eligible green and social projects.

These project categories are: clean energy, energy efficiency, clean transportation, biodiversity conservation, climate change adaptation, and the socio-economic advancement of Indigenous peoples and access to essential services.

“To be able to issue sustainable and green bonds, which if you think about our role in enabling the energy transition and enabling a clean energy future, is considerable as well as the very considerable role we play in Indigenous communities,” said Jay Armitage, Hydro One’s vice president of marketing and communications. 

“And so this is one part of our journey.”

Hydro One’s Sustainable Financing Framework

Headquartered in Toronto, Hydro One is Ontario's largest electricity transmission and distribution provider with approximately 1.5 million customers and 9,300 employees. In 2021, the company listed approximately $30.4 billion in assets and annual revenues of approximately $7.2 billion.

In 2021, Hydro One committed to net-zero emissions by 2050, as well as a 30 per cent reduction in greenhouse gas emissions by 2030.

The utility began developing the framework in January 2022, engaging with banking partners and its dealers with expertise in the project categories, as well as looking at what its peers have done with similar frameworks.

CIBC Capital Markets and Scotiabank acted as sustainable structuring agents for the framework.

Hydro One reached out to Amsterdam-based ESG research, ratings and analytics firm Sustainalytics to undergo a third-party review of its framework.

The firm stated Hydro One’s framework aligns with the International Capital Markets Association Sustainability Bond Guidelines 2021, Green and Social Bond Principles 2021, and the Loan Syndications and Trading Association Green and Social Loan Principles 2021.

In its review, Sustainalytics wrote the selection of project categories will help advance several UN Sustainable Development Goals.

“Sustainalytics is so well respected,” Armitage said. “It's also one of the organizations that certainly we watch, and it's important to our investors.”

Armitage did not provide specifics on the number or size of investments Hydro One aims to complete.

“Certainly that will depend on the market and projects,” she said. “What I can say is, when we're looking at the expansion of distribution and transmission in Ontario to support the energy transition, I think we're looking at a considerable number and size of projects to meet the growing demand and to meet our collective climate change goals.”

The timing of the inaugural bond will depend on Hydro One's cash requirements and market conditions — the same factors that drive regular bond issuances.

"Hydro One anticipates that a large portion of eligible projects will fall under the clean energy category due to Ontario’s low-carbon energy mix," Armitage told SustainableBiz in an email follow up. "This includes the construction, operation and maintenance of electricity transmission and distribution infrastructure, and equipment."

How the framework will function

Hydro One has established a Sustainable Finance Working Group responsible for the selection of projects, which Sustainalytics considers in line with market practice. The group comprises members from its treasury, sustainability, operations and environmental departments.

Sustainalytics’ review includes specifics on each of the project categories as well.

For example, the energy efficiency category could include the financing or refinancing of smart grid technology, smart sensors and automation systems. The review also confirmed no funds would go towards technology reliant on fossil fuels or fossil power plants.

With respect to Indigenous Peoples, the utility intends to finance and refinance procurement from small and medium enterprises at least 51 per cent owned or managed by Indigenous peoples, or defined as an Indigenous business by an Indigenous government.

The utility already planned to increase its Indigenous procurement spend to five per cent by 2026. It previously said it would dedicate 20 per cent of its community investment budget to Indigenous communities, as well as an offer of 50 per cent equity partnership on new transmission line projects with First Nations.

Hydro One will deliver annual updates on the net proceeds of any green financing, until the net proceeds are fully allocated to eligible projects. It is also open to amending the framework to incorporate new technologies and changes to climate and social practices in future years.

Reporting will include details like the allocation per eligible category, the share of unallocated proceeds, the share of financing versus refinancing and the description of projects financed by the proceeds. 

Where feasible, Hydro One will also conduct impact reporting “. . . which is expected to provide qualitative and quantitative impacts of the financed projects against respective key performance indicators,” the Sustainalytics review reads.

"We don't want to predict what we'll do, but what we can say for certain is that we will be reviewing it on a regular basis, and we are also constantly monitoring best practices," Armitage said.

"We're monitoring the views and expectations of our investors and other stakeholders too, as part of our larger sustainability commitment to do so."

Hydro One's Q4 results will be released Feb. 14.

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