Green bonds, blue bonds, social bonds …. thematic bonds are the financing instrument ‘du jour’ in Latin America for sustainable development projects issued both by private and public companies to finance projects with a social or environmental impact.
Just two years ago, terms such as thematic bonds, impact investing, stakeholder capitalism and even ESG were rarely uttered in the upper echelons of Latin American business. Today, they dominate the agenda of all major asset managers and executives.
During the first quarter of 2021, the issuance of thematic bonds in Latin America reached a record high of USD 16.2 billion. More specifically, sustainability-linked bonds accounted for 35% of the total thematic bond issuance reported by the United Nations Economic Commission for Latin America and the Caribbean.
In times of crisis, thematic bonds have proven resilient to address development agendas at a global level, and Latin America and the Caribbean is the region with the fastest growth in investor interest. The emergence of thematic bonds in the region is a result of high levels of sustainable investment opportunities, improving transparency standards and increased appetite for innovation by private sector issuers.
In 2018, Chile became the first country to issue certified green bonds in Latin America. Green bonds are now being issued across the region to finance infrastructure and energy projects related to the global energy transition.
The green bond market in Latin America grew from USD 1.5 billion in 2018 to USD 4.6 billion in 2020. Brazil leads the market by far, accounting for 48% of issues with Chile and Mexico behind at 16 and 13 per cent, respectively.
The Inter-American Development Bank (IDB) established a Social Impact Bond facility in 2014 to link social outcomes with financial support. The mechanism has proved successful with the IDB providing support firstly to Colombia and then Argentina, Chile, Mexico and Brazil.
An investment director at the 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’.”
The least mature of the thematic bonds, blue bonds are debt securities issued to raise capital specifically to finance the implementation of the UN’s sustainable development goals related to the oceans and the seas.
A sustainable bond promoter in Latin America had some , “Emerging market companies need to have a pipeline [of Blue bonds] attractive and big enough for investors with the same quality, independent valuation, etc as for green bonds.”
The Seychelles issued the world’s first blue bonds through a private placement amounting to USD 15 million in 2018. It was followed by a USD 234 million issue by the Nordic Investment Bank and a USD 450 million issue from Industrial Bank Co.’s Hong Kong branch. However, the global figure for blue bonds in 2021 is unclear.