Latin American governments scramble to tap green bonds

Finance Ministries across Latin America are rushing to tap the booming market for green bonds in the wake of the UN COP 26 summit, according to the World Bank.

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Rodrigo Cabral, senior financial officer for the World Bank treasury, said that the accords reached at the event in Glasgow this month in which nations agreed to combat climate change by halting deforestation and cutting the use of coal have accelerated the demand to issue debt whose proceeds are earmarked for environmental projects. The bank works with governments to structure bonds.

Cabral said that the demand for talking to sovereigns is growing exponentially.

The market was growing rapidly even before the summit. The data compiled by Bloomberg Intelligence shows that governments around the world have sold $92.3 billion in green bonds so far this year, surpassing a total of $37.5 billion in all of 2020.

Chile sold green debt overseas since 2019, while Colombia recently became the first of its regional peers to sell bonds in domestic markets. While Guatemala, Peru, Ecuador, and Mexico have issued securities that fund environmental, social and governance projects, other nations in the region have yet to follow suit.

Since 2008, the World Bank has issued green bonds in emerging market currencies to help develop domestic capital markets. In October it sold the equivalent of more than 70 million dollars in Mexican pes and almost $40 million in Colombian pes.

Cabral said that most Latin American countries looking to sell ESG debt will probably look to tap the international market first. He believes that there will be many newcomers to the market in the next one or two years.

Some investors are on the alert for greenwashing where issuers misrepresent their environmental credentials to take advantage of lower borrowing costs because of high demand for debt or equity that claim to be socially responsible.

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