Argentina's potential for sustainable finance laid bare

Sustainable finance has enjoyed significant growth in Latin America, with some countries such as Chile and Colombia issuing ‘green’ sovereign bonds to finance projects related to clean energy and climate change.

Argentina has also been involved, although on a smaller scale, with a total of US$1.025bn issued since the end of 2019. In comparison, Chile carried out a sovereign bond issue for US$1.5bn in a single operation.

To learn more about Argentina's sustainable finance outlook and growth potential, BNamericas spoke with Moody's Argentina-based analyst Florencia Calvente.

BNamericas: How do you see the general outlook for sustainable finance in Argentina?

Calvente: We are seeing increasing interest from issuers and investors in sustainable instruments.

In Argentina, 24 issuers are responsible for the US$1.025bn in sustainable instruments issued in the local market. This started towards the end of 2019, with the first issuance of this kind. Sustainable finance in Argentina experienced strong growth after that.

BNamericas: According to the latest Moody's report on sustainable finance in Argentina, most issues of this type have been in the energy sector. What other sectors show potential for sustainable finance?

Calvente: We think there’s strong growth potential for all sectors, given the low level of penetration of sustainable finance in the country.

Starting from that base, we see strong potential, particularly in the infrastructure and agricultural sectors. In fact, we’re already seeing growth in the latter, and it represents 18% of sustainable issuances.

BNamericas: Have you seen operations related to financing investments in water given Argentina's vulnerability to droughts and floods?

Calvente: We see a lot of potential and there’s a lot to do in that sense, although the local market will depend a lot on the macroeconomic situation and the ups and downs of the country.

BNamericas: How does Argentina's macroeconomic and regulatory context affect the environment for sustainable financing?

Calvente: In regulatory terms we’re not seeing additional limitations for sustainable financial instruments.

In macro terms, the main limitation we see for sustainable finance to reach a higher degree of penetration is the current average term of issuances in the local market.

In general, this type of instrument finances infrastructure to achieve sustainability objectives and therefore requires long-term investments that are greater than those observed in issues in the Argentine market, at least on average.

Besides that, we don’t see additional macroeconomic limitations for sustainable finance.

That said, and by way of example, we have seen longer-term issuances made in the energy sector.

BNamericas: In the case of public sector issuers such as the federal government and provincial administrations, are they in a position to go to the market to issue sustainable finance instruments?

Calvente: There is growth potential for the provincial administrations, but the reality is that today there is only one sub-sovereign issuer of sustainable instruments, which is the municipality of the city of Córdoba, which made an issue for US$13mn for the acquisition of LED lighting fixtures, installation of solar panels and optimization of the urban sewerage network.

In this sense, we believe there is potential for sub-sovereigns, and we’re receiving inquiries from provincial authorities, although their financing capacity depends largely on the national government.

In the case of the federal government, no sustainable instrument issues have been made and I’m not aware of any official plans.