At least five Latin American governments and several companies are considering debt sales to fund environmentally friendly projects in what is expected to be the region’s most active year for issuance of so-called green bonds since 2017.
The governments of Mexico, Peru, Colombia, Costa Rica and the Dominican Republic are either planning sales or working to establish the framework to issue this year, according to Sean Kidney, the chief executive officer of Climate Bonds Initiative, a London-based non-profit that promotes the use of the debt.
“We’ll see a fair amount of action,” Kidney said in an interview in Bogota. “The demand is there. Investors and pension funds have become acutely aware of climate change. The green bond is a bit like selling an ice cream on a hot day.”
While there’s still a lot of confusion about what actually constitutes “green” when it comes to bonds, global money managers are increasingly factoring in sustainability when investing. And advocates say that if a borrower is using money for a sustainable project, it’s likely a safer bet.
While the green bond market has caught fire globally, Latin America has lagged, making up just 2 percent of the record US$205 billion sold last year, according to data compiled by Bloomberg. Yet, there are signs that’s changing.
Kidney estimates green bond issuance from the region could reach US$6 billion this year, while the Inter-American Development Bank forecasts sales could total US$7 billion, the most since a record US$7.4 billion in 2017.
Chile has led the way in Latin America, issuing euro- and dollar-denominated green bonds last month that fetched some its lowest yields ever. That was a signal to others in the region, said Marilyn Ceci, a managing director and head of green bonds at JPMorgan Chase & Co., one of the largest underwriters of sales in Latin America.
“Anytime you see a sovereign issuing a green bond in the market, it gets a lot of attention in that region and in surrounding countries,” she proclaimed. “Certainly, the leadership shown by Chile will resonate well with many others in the region.”
Mexico appears to be the first in line. It hired BNP Paribas, Credit Agricole CIB and Natixis for investor meetings beginning Monday in which it will unveil its SDG Sovereign Bond Framework, which would be used to issue green euro-denominated debt.
Corporate issuers are likely to follow the lead of sovereigns, Ceci indicated.
Kidney affirmed several banks, energy companies and construction companies, among others, are considering green or sustainability-linked debt sales. He declined to name them.
Colombia’s Finance Ministry hasn’t set a time frame for a potential 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 analysed the possibility of selling green debt, but hasn’t set a date, a spokeswoman in the Finance Ministry’s public credit office said.
Costa Rica’s Finance Ministry didn’t respond to requests for comment.
If the governments do issue, they will find plenty of demand, Ceci said.
“There’s definitely increased interest in Latin America from investors,” she pointed. “There’s a large concentration of investors in parts of Europe, including the Netherlands, UK, France, and Scandinavia, that seek out green bonds. But there is also plenty of interest in the US from investors with deep pockets.”
by Ezra Fieser, Bloomberg