Latin American Green Bond Market To Set Record

Going green has never looked so good.

Latin America’s green bond market is outstripping growth expectations this year as a succession of companies rush to tap a growing pool of environmentally and socially conscious investors. As of July, issuers had raised over $4 billion, up from an unusually low $875 million in 2018, according to the Climate Bonds Initiative, a not-for-profit that promotes the use of green bonds.

By contrast, this year’s pace is exceeding expectations, says analyst Bridget Boulle. “We have already eclipsed what we had in 2017, when the market raised $3.9 billion and which was the highest ever [issuance] year,” she notes.

Chile, Brazil and Colombia are dominating the market. In June, Chile printed a $1.4 billion, 30-year note to fund projects to cut greenhouse gas emissions. Emboldened by impressive demand, it later issued nearly $1 billion in euro-denominated green notes. Brazilian paper manufacturer Klabin has issued $500 million of notes to fund environmental projects, drawing as much as $1 billion in demand from large funds including Aberdeen, Aviva and TIAA.

A spate of green debentures in Colombia—most recently a sustainable bond from key lender Bancolombia—has propelled issuance to nearly 1.3 trillion pesos, up from 941 billion pesos in 2018. “[Green bonds] have become a very popular topic,” says Sebastian Rojas, fixed-income analyst at Bancolombia. “CFOs are very interested in issuing this type of debt, and mutual funds and other investors are creating sustainable portfolios.”

The market is also innovating. Brazilian meatpacker Marfrig recently launched a so-called transition bond to develop more sustainable cattle ranching.

“There is no conclusive evidence that you will get a better yield if you issue a green bond,” says Ana Colazo, analyst at Paris-based green-bond ratings agency Vigeo-Eiris. “But you are tapping into a more diverse investor base with a socially responsible agenda that may not have looked at your company otherwise.”