Bloomberg — Finance Ministries across Latin America are rushing to tap the booming market for so-called green bonds in the wake of the United Nations COP26 summit, according to the World Bank.
Agreements reached at the event in Glasgow this month-- where 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, said Rodrigo Cabral, senior financial officer for the World Bank treasury. The bank works with governments to structure the bonds.
“The demand that we are getting to talk to sovereigns is growing exponentially,” Cabral said.
Even before the summit, the market was growing rapidly. Governments across the world have sold $92.3 billion in green bonds so far this year, already surpassing a total of $37.5 billion in all of 2020, according to data compiled by Bloomberg Intelligence.
Chile has sold green debt overseas since 2019, while Colombia recently became the first of its regional peers to sell such bonds in domestic markets. And while Mexico, Peru, Ecuador and Guatemala have also issued securities that fund environmental, social and governance projects, other nations in the region have yet to follow suit.
To help develop domestic capital markets, since 2008 the World Bank has issued green bonds denominated in emerging market currencies. It last sold in October the equivalent of more than $70 million in Mexican pesos and almost $40 million in Colombian pesos.
Most Latin American countries looking to sell ESG debt will probably look to tap the international market first, Cabral said. He says he expects “many newcomers” to the market in the next one or two years.
With high demand from investors for debt or equities that claim to be socially responsible, some investors are on the alert for “greenwashing”, whereby issuers misrepresent their environmental credentials to take advantage of lower borrowing costs.
