By: Staff Writer
January 12, 2024
A new study by the Economic Commission for Latin America and the Caribbean (ECLAC) shows that the value of sustainable bonds on the international market for Caribbean and Central American countries are valued at $4.3 bn and are projected to steadily grow over the next five years.
The study, “Sustainable bond issuances in international markets, 2014–2022,” for Latin America and the Caribbean (LAC) shows that there is a total of $100.134bn worth of sustainable bonds in the entire LAC and out of that, the Caribbean and Central American countries make up just $4.3bn of that total figure.
The Bahamas is the only country in the Caribbean to have any sustainable bonds on the international market, with bonds valued at $385m and Guatemala has the highest amount in Central America valued at $ 2.3bn with Costa Rica second with $800m.
Sustainability Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or refinance Green Projects or Social Projects, and which aligned with the four core components of the GBP and/or Social Bond Principles (SBP).
A green bond, conversely, is a fixed-income debt security that raises funds from investors interested in projects that generate environmental benefits. Green bonds are issued with the purpose of financing solutions for climate-related problems. The global green labelled market has seen exponential growth since its inception. From 2007 to 2020 it grew to around US$ 1tr according to the Climate Bonds Initiative (CBI), which estimates an average annual growth rate in this period at approximately 95%.
These bonds also include blue bonds, which by their definition, are bonds that are linked to the ocean. The report said: “In June, 2022, the Bahamas issued the region’s first blue bonds in global markets. It was a two-part deal totalling US$ 385m in dollar-denominated blue notes (US$ 235m in seven-year notes and US$ 135m in 14-year notes), which was partially guaranteed in the amount of US$ 200m by the Inter-American Development Bank (IDB). Moody’s and S&P Global Ratings assigned the proposed bonds a triple A rating. Both agencies cited the guarantees from the IDB as a reason for the high ratings.”
Initially, while most issuances in the LAC were of green bonds, the region has moved toward a diversification of the sustainable instruments used, with sustainability and sustainability-linked bonds becoming the region’s most used GSSS (Green, social, sustainability and sustainability-linked bonds) instruments since 2021.
The report added: “Alternative financial instruments have become increasingly available to investors interested in Latin America and the Caribbean (LAC), which could help it to address two goals: a) allocate funds to bridge the development gap and b) encourage investment in sustainable development projects. Green (or blue), social, sustainability and sustainability-linked (GSSS) bonds are an example of these instruments, and the issuance of GSSS bonds by Latin American and Caribbean issuers in international markets from December 2014, when the region’s first green bond was issued, to December 2022.”
The growth of the sustainable bonds market can only grow in the near future as investors see the potential and benefits of investing in sustainable bonds for the environment.
The study concluded: “The volume and share of international GSSS bonds in the region’s total international bond issuance has increased significantly. The participation share jumped from less than 1 percent in 2018 to 32 percent in 2022, a sharp five-year increase. In 2022, the GSSS bonds participation improved despite a reduction in volumes due to tighter financial conditions. These instruments thus showed growth and resilience during the eight years analysed.”
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