New office, same problem

Chile's Green Finance Office – unless its ideas generate returns on investment, its impact may be limited.

Last month, Chile’s Ministry of Finance announced the creation of a ‘Green Finance Office’. Two members of staff have been thus far announced, Daniela Buchuk and María Paz Gutiérrez – both respected economists. This seems like a natural development for a Chilean administration which leads Latin America in its innovative approach to green finance. For some time already, the finance ministry has busied itself promoting green public-private partnerships at a regional level. Globally, it has urged international cooperation in the fields of climate action and finance and since 2019 the country has issued some USD 7.7 billion in green bonds, more than any other country in the region.  

A Chile-based expert in green finance explained the new office’s focus, “The green finance office will have responsibilities in a number of areas including channeling investments towards green assets and promoting financial innovation that supports Chile’s climate objectives of moving towards the sustainable development of the country including low carbon emissions.”

“The green finance office will have responsibilities in a number of areas including channeling investments towards green assets and promoting financial innovation.”

Green finance expert, Chile

Green finance, though laudable in its objective to support more environmentally sustainable economies, can be challenging to implement in practice. Whilst macroeconomic prudence has placed Chile in better stead than much of the region, the twin threat of Covid and depressed commodity prices have left the administration (current and incoming) in a fiscal squeeze.  

The green office will trumpet the benefits of providing finance to SME’s and green infrastructure projects. These are the kinds of things that politicians like to trumpet on Twitter. The economic reality however is that social returns do not always equate to private returns and it’s the latter that matters if such projects are to become investable in the longer-term. Keep in mind too that the incoming administration of Gabriel Boric has promised to prioritise investment in education and healthcare – these areas will dominate spending leaving little left over for green initiatives. 

The green finance expert continued, “Chile’s push to decarbonise its national energy framework has been a government priority of both former president Michelle Bachelet’s administration (2014-2018) and the current one of president Sebastián Piñera. Boric has emphasised the importance of green hydrogen, he understands that the sector represents an opportunity to diversify the country economically. This matters because Chile remains too reliant on (non-renewable) copper exports.”

“Boric has emphasised the importance of green hydrogen, he understands that the sector represents an opportunity to diversify the country economically.”

Green finance expert, Chile

Investor confidence will remain buoyed by a comprehensive regulatory framework and a government sincere in its efforts to develop the sector. Investment in green infrastructure will also boost confidence. Ultimately however, it’s the money that matters. Investments require returns and whilst ‘social returns’ are good for Twitter and press releases; they are less so for the bottom line. The Green Finance Office will need to convince cautious financiers that a financial return on investment is in the offing. 

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