Green, Social and Thematic BondsGreen, Social and Thematic Bonds are fixed-income financial instruments issued with the aim of addressing climate change and facilitating environmental and social solutions.
The green bond labelled global market, which kicked off in 2007, reached a new record in 2021 of USD 517.4 bn, according to Climate Bonds Market Intelligence. The annual figure is the highest since market inception and maintains the trend of 10 consecutive years of green market expansion. Substantial growth across social, sustainability, sustainability-linked bonds (SLBs) and transition labels pushed 2021 issuance across these themes to USD646.5bn in 2021.
Green bond issuance in the LAC region more than doubled in less than two years, from USD13.6 bn in September 2019 to USD 30.2 bn at the end of June 2021. For social and sustainability bonds, this growth is even more noticeable with USD 18.3 bn in cumulative issuance to the end of H1 since the inception of this market segment in 2016. Despite the impact of the COVID-19 pandemic, the LAC sustainable debt market continued to soar throughout 2020 and 2021 across all main themes.
Chile and Brazil are home to the largest Green, Social and Sustainable (GSS) bond markets in the region. Mexico is in third place. Together the top three countries make up 77% of all GSS issuance in the LAC region.
The rapid development of LAC’s GSS bond market is benefitting not just from existing issuers but also from the influx of new issuers every year. ESG investing, including in thematic bonds beyond the traditional green label has been on the rise in the LAC region over the past couple of years.
In Latin America and the Caribbean, the need for financing to combat the effects of climate change is estimated at up to US $ 80,000 million a year until 2030.
IDB and IDB Invest have been extensively supporting the Green, Social and Thematic Bond Markets in LAC. The Group has assisted with the structuring of more than 30% of the total issuance volume of Thematic Bonds in the region. Technical support has also been complemented to bond issuances, including the design of the conceptual framework.
Scope of Activities
Are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects and which are aligned with the four core components of the Green Bonds Principles.
Sovereign Green Bonds
Green bonds issued by national governments. The issuance of sovereign green bond allows a government to directly attract capital markets to finance such commitments, linking financing sources with specific policy measures (projects, subsidies, fiscal incentives). Examples of sovereign green bonds emissions with involvement of IDB, here.
Any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible Social Projects and which are aligned with the four core components of the Social Bonds Principles. Examples of social bonds emissions with involvement of IDB, here.
Are bonds where the proceeds will be exclusively applied to finance or re-finance a combination of both Green and Social Projects. Sustainability Bonds are aligned with the four core components of both the GBP and SBP with the former being especially relevant to underlying Green Projects and the latter to underlying Social Projects. Examples of sustainable bonds emissions with involvement of IDB, here.
They are subject to the same financial and capital market regulation as traditional bonds, but their aim is to bridge existing gaps in terms of female access to the labor market, leadership positions, and financing. Examples of gender bonds emissions with involvement of IDB Invest, here.
Debt instrument issued by governments, development banks or others to raise capital from impact investors to finance marine and ocean-based projects that have positive environmental, economic and climate benefits.
Where it is implemented
- IDB Invest signed an agreement with BICE (Banco de Inversión y Comercio Exterior) for the subscription of a $30 million bond. The bond issuance structured with the technical support of the IDB aimed at strengthening financial inclusion and productive development. The use of the funds is aimed at increasing the loan portfolio in BICE for projects that comply with at least one of the seven identified SDGs (1, 5, 7, 8, 9, 10 and 13).
- Brazilian state-owned power company Eletrobras has received certification from the Climate Bonds Initiative (CBI) to sell green bonds to finance wind and solar power projects. Eletrobras received support in the certification process from the IDB. The green bonds were created to finance projects and assets that have environmental and/or climate benefits, such as energy efficiency in buildings, clean energy, low-carbon transportation, waste management, among others. Both the supply of green bonds and the market's interest in financing them are growing in Brazil, either through investment funds or by involving companies with social and environmental commitments. Until January 2020, Brazilian green bonds were issued in the amount of approximately US$ 5.75 billion in the national and international markets -more info here-.
- Eletrobrás, a company in Brazil's electricity sector, made its debut in the Brazilian capital market with the aim of financing infrastructure. It was supported by the Inter-American Development Bank (IDB).
- Banco de Desarrollo de Minas Gerais (BDMG) issued a sustainable bond in the international market, becoming the first Brazilian public bank to issue a sustainable bond. This issue had the technical support of the Inter-American Development Bank (IDB).
- IDB in collaboration with the Climate Bonds Initiative, supported the Chilean Ministry of Finance in the preparation of the green bond framework and in the identification of a portfolio of eligible expenditures that will support the issuance of the first sovereign green bond in the Americas. More info here.
- Chile was the first country in the Americas to issue green bonds. Chile's green bonds were structured according to the Chile Green Bond Framework, a document prepared by the Ministry of Finance in coordination with other sectoral ministries and the support of the Inter-American Development Bank. The Chilean government with IDB assistance has issued bonds in US dollars, euros and Chilean pesos, for about 11 billion, 6 billion and 2 million, respectively.
- The National Bank of Foreign Trade, (Bancóldex) issued the first Social Impact Bond in the country with the objective to obtain a formal job for populations vulnerable to unemployment. If the beneficiaries got a job, the government and the IDB Lab (with funds from the Swiss Economic Cooperation) paid 50% of the agreed price. The remaining 50% is paid if the beneficiaries retain the job for at least 3 months. An additional premium of 10% of the total price if they retain it for at least 6 months. In addition, it has issued a green and an orange bond for 200 billion and 400 billion Colombian pesos respectively. More info here.
- Colombia issued green twin bonds. It became the second Latin American country to issue sovereign green bonds; and the first to do so in local currency. The Inter-American Development Bank (IDB), in coordination with the World Bank, supported the Colombian Ministry of Finance and Public Credit in preparing the necessary documentation and certifications for the issuance. According to the framework of these bonds, this transaction supports the financing of projects in water management; transition of transport to a cleaner and more sustainable system; protection of biodiversity; and the transition to non-conventional sources of renewable energy.
- Findeter has issued a sustainable bond in the amount of 400 billion Colombian pesos.
- The Costa Rican Electricity Institute (ICE) issued bonds in the international market, in a transaction structured as sustainability-linked bonds (SLB). For this operation, ICE was supported by the Inter-American Development Bank (IDB) in the sustainability aspects of the bond. This is the first SLB bond issued by a public utility.
- The Costa Rican Electricity Institute (ICE) issued green bonds in order to raise funds to refinance a portion of the existing debt related to the construction of the Reventazón hydroelectric plant, which came into operation in 2016 and is the largest renewable electricity generation plant in the country. For the issuance ICE had the support of the Inter-American Development Bank (IDB) in the process. ICE becomes the first utility company in Costa Rica to present a green bond. Following the second opinion, the issue was certified by the Climate Bond Initiative (CBI). This is the first time in the world that such recognition has been given to a bond linked to a hydroelectric plant.
- IDB Invest subscribed $ 50 million of a bond issued by Banco Pichincha for a total of $ 150 million. This is the first green bond issued in Ecuador’s stock market and the proceeds are intended to support projects with measurable environmental benefits, specifically in projects related to energy efficiency, renewable energy, clean production, construction and sustainable transport and waste management.
- Ecuador has issued a Sovereign Social Bond in the international market for $400 million, becoming the first country in the world to make this type of placement. The issuance will serve to boost the government program Casa para Todos, providing access to decent and affordable housing for more than 24,000 medium- or low-income families. It will also mobilize approximately $1.35 billion in investments in the country's housing sector. This issuance is backed by a guarantee from the Inter-American Development Bank (IDB) for $300 million, making the operation highly attractive for international investors and reducing significantly financial costs for Ecuador. The bonds proceeds will be used to provide mortgage loans at a preferential interest rate of 4.99% through the Ecuadorian financial system and a securitization scheme. The issuance is compliant with the Social Bond Principles of the International Capital Markets Association. More info here.
- Rural Development Trust Funds (FIRA) various green bonds for a total amount of 8000 billion Mexican pesos and a social bond for 2500 billion Mexican pesos in the stock market. The resources obtained will go to finance protected agriculture projects and climate-smart forestry projects, as well as efficient use of water and renewable energy. The issue had the distinction of being the first green bond in the local market that includes forestry. View video here.
- First gender social bond issued in Latin America Banistmo, a subsidiary of the Bancolombia Group, with the support of IDB Invest. The US$50 million bond aims to promote gender equality and the economic empowerment of women, which will be channeled through Banistmo. The funds will finance SMEs led by women who are clients of the institution. More info here .
- Two bond issues by the Development Finance Corporation of Peru (COFIDE) up to $20 million: (i) a subordinated social bond aimed at equal opportunities for women-led micro and small enterprises (SMEs) for up to the equivalent of $10 million; and (ii) a senior social bond aimed at equal opportunities for women-led micro and small enterprises for up to the equivalent to $10 million. -more info here-. In addition, the entity has also issued a green bond.
- The issuance of the first COVID bond in the Peruvian capital market was carried out by COFIDE with the technical support of the Inter-American Development Bank (IDB) and the Swiss Cooperation - SECO.
The role of the IDB and IDB Invest developing Green, Social and Thematic Bonds Bonds Markets in LAC
Available for private financial institutions and National Development Banks to support their efforts to raise private funds at adequate maturities and terms in both local and international capital markets, through the issuance of Green or Sustainability Bonds. Those issuances should attract national and international institutional and impact investors and therefore have an impact on the issuer’s ability to diversify sources of funding, while promoting low-carbon investments or investments with high positive social impacts.
Through the Green Bond Transparency Platform the IDB seeks to promote greater transparency and comparability, helping attract new investors to the region and providing a higher level of confidence to existing investors. The Green Bond Transparency Platform is developed with the support of market experts.
Under this arrangement, IDB Invest participates as the anchor investor of a debt issuance, providing confidence to the market and attracting other investors to purchase or subscribe to a debt security.
IDB and IDB Invest can also issue partial credit Guarantees to cover bond issuances with the potential of leveraging IDB’s triple-A credit rating and crowding in institutional investors. View more here
Why Green, Social and Thematic Bonds?Since they have similar yields, ratings and return profiles to other fixed income investments, they provide investors with a clear way to get both economic and environmental returns without significant additional risk.
Green, social and thematic bonds can advance adoption of innovative new technologies, finance projects that provide green jobs, and promote economic and climate resiliency across regions. The emission can benefit issuers in the following aspects:
Attract new investors and new types of investors, providing a potential market for future issuances.
Secure large amounts of capital to support environmental investments that may not otherwise be available.
Different types of tax incentives policy makers put in place to support green bond issuance.
Provide issuers with a chance to brand themselves as forward thinking, innovative, and sustainable, demonstrating commitment to contribute addressing climate and social-related issues.
GSB allows overcoming barriers to Green Investment such as
Lack of dedicated finance to green and sustainable assets and projects.
Misalignment of public sector financing decision-making with the environmental dimension of sustainable development.
Investment gaps in clean and green technologies, finance for sustainable natural resource-based green economies, climate smart blue economy.
World's first Sovereign Social Bond issuance in the international market to diversify its financing sources for enhancing access to affordable housing
The issuance amounting to US $400 million is supported by a US $300 million Guarantee Coverage from IDB. In addition, IDB Invest supported Banco Pichincha with technical assistance for the design of the conceptual framework of the issuance and the inclusion of a second-party opinion. More information here
Eletrobras, Brazilian state power company, has received certification from the Climate Bond Initiative (CBI)
Can issue green bonds to finance solar and wind power generation projects. The certification process had the support of the Inter-American Development Bank (IDB). More information here
First Social Bond with a Gender focus
The project consists in the subscription of the first Social Bond with a Gender focus, to be issued by Banistmo S.A. (“Banistmo”) in the local market (private placement) for up to US$30 million, bullet, in a maximum five-year term. The proceeds will be used to finance projects with high positive social impact in the country, focus on women-led small and medium enterprises ("SMEs"). More information here
Partners on the GroundThe objective is to support public and private entities (including financial institutions and national development banks, utilities, corporations and private developers) in their efforts to raise private funds at adequate maturities in both local and international capital markets, through the issuance of green bonds or sustainable bonds.
Who is supporting GSB?
The IDB and IDB Invest are also working with other type of players such as Government Agencies, Financial Sector regulatory bodies or domestic Stock and Bond Exchanges in order to support the design of national strategies and approaches to incentivize domestic green and sustainable bonds markets and ensuring transparency. Pilot programs are currently being developed in Brazil, Chile, Mexico.
Both sections of the program include a strong dissemination component and all relevant knowledge products will be made available through this platform.
The program is currently being developed thanks to the support of Switzerland’s State Secretariat for Economic Affairs (SECO) for Colombia, Peru and Ecuador – and of the International Climate Initiative (IKI) of the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) via the LGI program for other countries in the region and the Accelerator Multi-Donor Trust Fund (ACL).
- Stay updated on the latest trends of Green Finance