2020 marked a turning point on sustainable investment at a global level. According to the Harvard Business Review, some USD 30 trillion of professionally managed assets are subject to some form of ESG criteria, a 30% increase since 2016!
In Latin America, just two years ago, terms such as impact investing, stakeholder capitalism and even ESG were rarely uttered by investors. Today, they dominate the agenda of all major asset managers and the sums of money involved are getting meaningful: Chile alone has issued a total of USD 12.6 billion in ESG-linked bonds.
An investment director at the Inter-American Development Bank (IDB) noted, “Latin America is not far behind the rest of the world in sustainable financing. The first sovereign social bond in the world was issued by the government of Ecuador, for USD 400 million at the beginning of the pandemic, supported by the IDB, which made a commission to boost a government programme called, ‘Casa para todos’. Last week we saw Chile return to the bond market with a USD 4 billion issue of social bonds, following a similar USD 2 billion issue in November. Demand is building in Latin America for this type of issue and the IDB is supporting both sovereign and private issues.”
“The first sovereign social bond in the world was issued by the government of Ecuador, for USD 400 million at the beginning of the pandemic, supported by the IDB.”
Investment Director, Inter-American Development Bank
A senior fixed income analyst at a US investment bank saw a similar trend, “In Q3 2020, we saw the first sovereign bond linked to Mexico’s sustainable development goals. We have seen more loans associated with sustainability, for example, CEMEX obtained the largest sustainable bond for USD 3.2 billion, with a commitment to reduce polluting emissions and increase the use of renewable energy.”
“In Q3 2020, we saw the first sovereign bond linked to Mexico’s sustainable development goals.”
Senior fixed income analyst, US
Momentum is building and other Latin American countries are expected to follow. Panamá is already planning to hit the sustainable bond market and Colombia’s Ministry of Finance recently announced Senate approval for the issue of its inaugural sovereign Green, Social and Sustainability (GSS)-labelled bond.
There is also a growing interest from regulators across the region to provide guidance and rules on ESG investment. For example, Colombia’s regulators are developing their own classifications and Chile and Mexico that are using the EU’s one as a base to develop their own framework. Even more, many Central Banks are now members of the Network for Greening the Financial System (NGFS) which promotes a greener financial system.