In a significant move towards revitalising Canada’s defence sector, the Royal Bank of Canada (RBC) is advising the Ontario government on a groundbreaking $500-million bond aimed at funding defence projects. This initiative marks a pivotal shift in the financing landscape for a sector that has long been overlooked by institutional investors. With the bond, Ontario is positioning itself to attract the headquarters of the Defence, Security and Resilience Bank (DSRB), a new multilateral institution dedicated to financing defence initiatives.
A First for Canada
The provincial government announced on Tuesday its plans to issue what it terms a “resilience bond,” a pioneering financial instrument in Canada specifically tailored for defence and security projects. This bond is expected to raise a minimum of $500 million, with preparations underway for a syndicate of banks to manage its issuance, potentially as early as summer.
Sources close to the discussions, who requested anonymity due to the sensitivity of the negotiations, revealed that the collaboration between RBC and the provincial government has been developing over recent months. This bond not only represents a financial commitment but also reflects Ontario’s ambition to host the DSRB’s headquarters, following the conclusion of negotiations among 19 founding countries in Montreal.
Competing for the Headquarters
With both Ottawa and Toronto vying to secure the headquarters of the DSRB, Ontario has pledged its full support to Toronto as the preferred location. A decision from the federal government regarding the host city is anticipated in the coming months, further intensifying the competition between the two cities.
The bond will be structured in line with Ontario’s sustainable bond framework, which was introduced in 2024 to enhance funding for green, social, and sustainability projects. Specifically, it will focus on bolstering defence infrastructure, including critical areas such as cybersecurity, emergency response capabilities, and defensive technologies. Additionally, the bond may also facilitate the initial setup and operational costs of the defence bank, with a primary aim to attract institutional investors.
Changing Attitudes Towards Defence Financing
Historically, Canadian banks have been wary of financing defence-related projects due to concerns over lending risks and potential damage to their reputations. However, recent trends indicate a shift in this attitude, propelled by increased government spending in the defence sector amid heightened geopolitical tensions. Investor interest in defence has surged, leading to significant gains in the share prices of defence companies.
RBC’s chief executive, Dave McKay, has emphasised the necessity for the private sector to take a more active role in supporting the defence industry and critical infrastructure. He cited the United States as a model where public and private investments successfully coexist to generate greater returns on military and industrial projects.
As North America’s seventh-largest bank by market capitalisation, RBC’s capital markets division wields considerable influence, especially in the U.S.—the world’s largest defence market—where it operates across more than 200 cities in 43 states.
Why it Matters
This initiative represents a transformative step for Canada’s defence financing landscape, potentially reshaping how the country supports its military and security infrastructure. By establishing a dedicated funding mechanism, Ontario not only strengthens its position in the global defence arena but also signals a broader acceptance of the importance of private investment in national security. As geopolitical uncertainties continue to rise, this bond could pave the way for enhanced military preparedness, ensuring that Canada is better equipped to face emerging challenges.
