Can transition bonds gain scale in Latin America?

The interest of companies and investors across Latin America to be more active in issues of sustainability-linked green bonds is growing and can benefit segments that face challenges to reduce greenhouse emissions.

As part of this trend, the non-profit Climate Bonds Initiative (CBI) is holding a public consultation to insert more segments into the so-called transition bond market, which is for companies that are in the process of improving their footprint but are not yet eligible to access the green bond market.

In addition, CBI is also seeing more interest from banks in the region to be part of a process to improve their sustainability approach. This week, Brazilian development bank BNDES signed a cooperation agreement with CBI to attract sustainable investments. 

Leisa Souza, CBI’s Latin America head, talked with BNamericas about the agreement with BNDES and also about the growing interest of multiple stakeholders to improve their sustainability footprint.

CBI describes itself as an international organization working to mobilize global capital for climate action.

BNamericas: What does this agreement that CBI signed with BNDES this week represent?

Souza: We’ve been working with BNDES for a long time, since they issued their first green bond a few years ago.

Now, through this agreement announced this week, we’re formalizing a partnership to work on some fronts with the bank.

One of the points that we’ll contribute to BNDES is to better understand how the bank's investment portfolio is currently composed and how it has contributed to issues related to climate change.

Another work front will be to bring the bank closer to the discussions, to the framework in relation to green bonds that has been happening internationally.

BNamericas: Can this partnership establish guidelines for the bank to be more focused on projects related to sustainability?

Souza: Our partnership starts with this assessment of the bank's portfolio that I mentioned, understanding how the projects being financed by the bank have climate-related impacts. How the financing obtained by BNDES is used by companies.

BNamericas: Can the partnership with BNDES be extended to other banks?

Souza: What BNDES is doing is a very important signal within a sustainability agenda for other banks in Brazil to follow this example.

We already have some banks working in a similar way in the region.

We have also developed a very strong relationship with the Development Bank of Colombia [Bancóldex].

It’s important to work with development banks, as they serve as a signal to other market participants.

BNamericas: What are the sectors with the greatest potential for accessing green bonds, sustainable bonds?

Souza: There are already sanitation companies issuing sustainable-linked bonds. The sanitation sector is a segment that has both environmental and social [positive] impacts.

In addition, the other sectors with more potential are energy and transport, especially those linked to railways and urban mobility.

BNamericas: In terms of financial costs for companies, is it more advantageous to issue green bonds than a traditional bond?

Souza: In Brazil and Latin America we still don't have such a long history of issues [of green bonds], so it's still difficult to make this assessment.

As the market for this type of issue grows, we’ll be able to see this better.

BNamericas: We’ve seen mining companies announcing many emissions reduction programs. Will it be possible one day to see a mining company issuing green bonds?

Souza: In Canada there’s been a lot of talk about this because it’s a sector there with a strong participation in the economy.

We have in a public consultation phase some segments that are being evaluated to be considered in the so-called transition bonds, which is a kind of halfway point for the issuance of a green bond.

The segments under analysis currently are basic chemicals, cement, hydrogen, steel and oil & gas.

It’s within our pipeline to also include the mining sector in these public consultations for the sector to also enter the so-called transition bonds model. 

It makes sense to consider mining companies, because they have set targets to be carbon neutral by 2050.

BNamericas: Faced with the increase in issuances of green bonds, have you seen cases of greenwashing or at least some suspicion of it in the region?

Souza: As far as I know, we still don't have any registered cases of greenwashing in Latin America, nor do I have information about ongoing investigations.

BNamericas: What is your expectation for the volume of green bond issues in Latin America this year?

Souza: We don't make estimates about the region specifically.

What we saw last year was a slight drop in the volume of issuances in Latin America, due to electoral processes in some countries.

But the trend is for this segment to expand. Latin America currently represents 2% of the volume of green bond issues in the world.

We’ve been working with a focus on expanding these issues in the region. Chile, Mexico and Brazil are already quite relevant in relation to the green bond market and we’ve seen Colombia and Peru also looking at it with interest.