Good news for sustainable financing in Latin America

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The issuance of ESG bonds closed 2020 with an issued volume of more than 450 billion dollars, that is to say a growth of almost 50% compared to the previous year. This growth was largely supported by the issuance of social and sustainable bonds (46% of the ESG bond market), which almost quadrupled, as issuers sought to support the health and economic recovery needed in the aftermath of the pandemic.

In the first half of 2021, ESG bonds became even more relevant in the bond market, exceeding $ 1.5 trillion on the market and a volume issued to date which already exceeds the total volume issued at the end of 2020. In a year when sustainable development must undoubtedly be part of political and economic decisions (COP26 and global economic recovery), the issuers of green , social and lasting bonds did not stay behind, and through these emissions, have contributed to the fight against climate change, while also committing to inclusive and sustainable growth.

We must therefore underline the significant evolution and growth experienced by sustainable finance in the Latin American region during 2021. Undoubtedly, all market players are aware of the challenges and opportunities in the region in terms of sustainable development. In this sense, it already seems evident that ESG bonds can and should play a relevant role in the region to mobilize funds for initiatives, projects and programs that contribute to social and environmental development in the region. Latin America.

The emergence of obligations linked to sustainable development

Since September 2020, and throughout these months of 2021, the ESG bond market has integrated a new type of sustainable bonds called sustainable development bonds (SLB), which, although widely accepted around the world, are particularly relevant in Latin America.

Undoubtedly, the urgency to respond to the crisis has facilitated the relevance of social obligations and obligations linked to sustainability insofar as they make it possible to identify measurable impacts at the level of the institution or the project. Thus, in Latin America, we have seen how in the first six months of the year the volume issued in ESG bonds during 2020 tripled (4.1 billion USD in 2020 against 12 billion USD in June 2021) the format of bonds linked to sustainable development being the most used (around 80% of cases).

Remember that the region’s ESG bond market was initially supported by sovereign issuers, followed by financial institutions. This very significant surge of SLB in countries like Mexico or Brazil, however, is explained by the interest of private issuers in the private sector in better explaining how ESG issues, such as climate change, social justice, transparency and human well-being, are key concerns that are taken into account. account in the definition of their business strategy. Through this type of link, continuous improvement is sought in key aspects that affect the way companies act and through environmental or social indicators, investors can annually monitor compliance with the ESG objectives set by each issuer in the short, medium and long term.

Today, most of the region’s ESG bonds are issued in dollars or euros, giving access to international institutional investors who have shown considerable interest in this type of sustainable investment for several years. However, we should be positive on the evolution of sustainable finance on the region’s local bond market. Despite its difficulties, this local market is stronger than it was a few years ago and several regions are already defining local regulatory frameworks on sustainable finance to facilitate the transparency and standardization of this type of instrument, seeking to follow best practices and thus improve the access of local investors to this ESG market.

It is encouraging to see that oversight and compliance with international standards when issuing ESG bonds is being promoted in local markets. It’s a great opportunity to attract capital focused on inclusive social and environmental development in the region, and drawing on international best market practices will undoubtedly help to maintain the integrity and growth of this ESG bond market, which in turn will attract the interest of international and national investors.

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