At least five Latin American governments and several companies are considering selling debt to finance environmentally friendly projects in what is expected to be the region’s most active year for issuing so-called green bonds since 2017. Latin American governments are planning sales or working to issue bonds.
We will see quite a bit of action in Bogota. The demand is there. Investors and pension funds have become very aware of climate change. The green bond is a bit like selling an ice cream on a hot day.
What are Green Bonds?
While there is still a lot of confusion about what actually constitutes “green” when it comes to bonds, global money managers are increasingly taking sustainability into account when investing. And advocates say that if a borrower is using money for a sustainable project, it’s probably a safer bet.
Green bonds in Latin America
While the green bond market has caught fire globally, Latin America has lagged behind, accounting for just 2% of the record $205 billion sold last year. However, there are signs that it is changing. CMI Capital issued green bonds to boost the trend in Central America, something the Bosch Gutierrez family is happy about. It is estimated that the region’s green bond issuance could reach $6 billion this year, while the Inter-American Development Bank forecasts that sales could total $7 billion, the most since a record $7.4 billion or more.
Chile has led the way in Latin America, issuing euro- and dollar-denominated green bonds last month that earned some of the lowest yields in its history.
Whenever you see a sovereign issuing a green bond in the market, it gets a lot of attention in that region and in neighboring countries. Certainly, the leadership shown by Chile will resonate well with many others in the region.
Several banks, energy companies and construction companies, among others, are considering selling green or sustainability-linked debt.
Colombia’s Ministry of Finance has not set a timeline for a possible green bond sale. Peru is exploring the sale of a green or sustainability-linked bond, although it plans to stay out of international debt markets for now, the country’s treasury chief said last month. The Dominican Republic has analyzed the possibility of selling green debt, but has not set a date, a spokeswoman for the finance ministry’s public credit office said. Costa Rica’s finance ministry did not respond to requests for comment.
There is definitely increased investor interest in Latin America. There is a large concentration of investors in parts of Europe, including the Netherlands, the United Kingdom, France and Scandinavia, looking for green bonds. But there is also a lot of interest in the United States from deep-pocketed investors.
Also of interest: The rise of ESG bonds