As climate change continues to alter how people do business, companies have been looking for ways to lessen the negative effects humans have on the environment.
That’s where green bonds come in.
You may have never heard of green bonds before, but for over a decade, they have been a way to get eco-friendly projects started. Before we get into Latin America’s role in it all, let’s review what green bonds are.
What Are Green Bonds?
Green bonds or climate bonds are bonds whose proceeds are given to environmental and climate change projects. Think of building solar panels and wind turbines — green bonds would go exclusively to these projects to help the environment and help slow climate change.
If an organization wants to be more eco-friendly and support green projects, a green bond is one way to do fund the project. In addition, investors can feel good about being socially responsible and investing in an industry that helps change the planet for the better.
Who is Issuing Green Bonds?
Local, state, and national governments, as well as companies, are the ones issuing green bonds. European Investment Bank and the World Bank are some of the largest distributors. In the U.S, even Fannie Mae, the federal national mortgage association, issues green bonds.
Who is Buying Green Bonds?
Institutional investors, investment managers, and governments are buying green bonds. Institutional investors are usually commercial banks, pension funds, mutual funds, and insurance companies.
But are so many different organizations interested in buying green bonds?
What makes green bonds great for investors is that they are generally safe investments and tax-exempt.
Let’s look at reasons for this below.
The Potential of Green Bonds
In 2018, there were $170.6 billion in green bonds issued. At the end of 2019, issuance grew by 51% at $257.7 billion with some projections well into 270 billion!
Not only is this an insane jump, but the Climate Bonds Initiative estimates that $350 billion worth of green bonds will be issued globally in 2020.
That being said, Latin America’s green investment contribution pales in comparison to those of Europe and North America. Check out the stats below.
Despite the low issuance of green bonds in Latin America in the past, industry experts are predicting a sharp rise in green projects in the region.
The bonds help the countries become sustainable and eco-friendly, as well as push for more investments in projects that will make Latin America a more attractive place to invest in.
Examples of Green Bond Projects
Billions of dollars of green bonds have been used around the world to fund eco-friendly sustainability projects. Even brands that are household names have jumped right into the green bond trend. Here are just a few examples of green bond projects.
Apple issued a $1.5 billion green bond in 2015 and a $1 billion green bond to fund clean energy and environmental projects in 2017. The revenue from selling the bonds will be used to support renewable energy and energy efficiency at Apple facilities and its supply chain.
In October 2019, Pepsi offered its first green bond at $1 billion. It will use the profits to reduce their greenhouse gas emissions and to replenish the water it consumes during manufacturing. Another eco-friendly Pepsi project is to buy biodegradable or recyclable material for packaging.
More recently, VF Corp, which owns brands like Vans, The North Face and Timberland, closed a €500 million green bond offering. It plans to use the proceeds to support its sustainability goals, like sourcing some of its materials from recyclable, renewable, or regenerative sources by 2030.
LATAM and Green Bonds
While the U.S, Europe, and Asia have been investing in green bonds for years, LATAM has lagged.
Latin America has finally jumped on the bond train and is catching up with other regions in this type of investment.
Green bond disbursement has picked up in the past three years and investors are looking to buy climate bonds in Latin American countries.
This region is becoming one of the fastest-growing in the world, investment in green bonds, not to mention LATAM investment in fintech are just a few of the reasons why people are eager to invest in Latin America.
Brazil is the biggest issuer of green bonds in Latin America. It represents 41% of total LATAM issuance (or $5.1 billion) as of July 2019. As of February 2020, Brazil’s interest rate is low at 4.25%, which is beneficial to investors. As a result of these favorable conditions, green bonds are to be a sure hit in Brazil!
One project the bond revenue will fund is responsible soy and corn production. They will offer low-interest credit lines to soy and corn farmers who vow not to not clear native forests for agriculture.
In second place is Chile, where in June 2019, it issued $1.42 billion in green bonds and raised $959 million on the European bond market. It was the first non-European sovereign to issue a sovereign green bond in euros. By July, it had disbursed $3.1 billion in bonds.
At the time, Chile announced a climate action plan to shut down all coal power plants by 2040. Chile also wants to be carbon neutral by 2050. The revenue from its green bonds can help the country reach its environmental goals.
Last but not least is Mexico, the third-largest issuer of green bonds in Latin America. It distributed $1.8 billion worth of bonds in the first half of 2019. Money earned from their green bonds was used to finance projects on energy efficiency, sustainable transport, and hydraulic infrastructure. It just goes to show how beneficial funding is to help stop climate change and help everyone be more eco-friendly.
Stay Up to Date on Everything LATAM
Green bonds are the next new form of investing in Latin America. If you want to stay in the LATAM trend loop, check out our blog at Colibri Content.
And if you want to invest or break into Latin America, contact us at email@example.com!