The bond market

ESG bond issuance in LatAm, growing but not fast enough.

Issuance of sustainability-linked bonds (“SLB’s”) by Latin American companies in international markets grew exponentially in 2021. The region’s top three SLB issuers were Brazil (60%), Mexico (28%) and Chile (8%). During that year the top three sectors were transportation (26%), forestry and paper (23%) and food and beverage (22%).  

In January, Chile secured USD 4 billion from a three-tranche SLB issuance. Indeed, Chile became notable as the first nation to sell bonds linked to its sustainability objectives. The SLBs were dollar denominated and with a twenty-year maturity which appealed to potential holders. The USD 4 billion round helped to secure this year’s USD 6 billion foreign market issuance target according to Cristobal Gamboni, director of the finance ministry’s newly established green finance office 

An economist and director of a regional initiative promoting responsible investment explained the recent drop in issuance, “The recent dip in the issuance correlates in large part to the realities of global markets including rising interest rates. This could be making the bonds less attractive. That being said, in markets such as Colombia and Mexico where the situation is not so favourable, they are markets with good dynamics for this type of issue to come out this year.”

“The recent dip in the issuance correlates in large part to the realities of global markets including rising interest rates. This could be making the bonds less attractive.”

Director, regional initiative promoting responsible investment

Elsewhere in the region, Uruguay earlier this year announced it would issue USD 1 billion worth of SLB’s, the interest rate of which would depend on the country’s compliance with its environmental goals by 2025.   

What is behind the continuing lure of Latin America’s sustainability bonds? 

The first is that historically within the assets in which Latin American institutional investors invest are fixed income, bonds, so an important part of what they invest has always been in bonds making this investment easier.  

The second is that there are different institutions, such as institutional development banks that have been very effective in creating that demand, they have taken on the task of explaining what they are – ensuring good communications – and encouraging them to issue at a time when there were hostility at the top and resistance from the old guard.  

That thinking and support has made it easier for more ESG bonds to appear. Green bonds were the ones that banks and governments started with and although there are other issuing bonds today, green bonds still remain the bread and butter for Latin America’s ESG bond issuance ecosystem. 

“Regarding which other countries investors should look at, possibly Panama, Costa Rica, Ecuador, and perhaps Uruguay and Peru…”

Director, regional initiative promoting responsible investment

“Regarding which other countries investors should look at, possibly Panama, Costa Rica, Ecuador, and perhaps Uruguay and Peru, but it will take time, so it is easier at the moment to rely more on the issuing of bonds in Brazil, Mexico, Colombia and Chile,” adds the economist.  

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