Just a year ago we analyzed how green, social, sustainable bonds (” ESG bonds” ) were making steady progress in a very complicated scenario marked by the health crisis of COVID-19.
Well, during the second half of 2020 and the first six months of 2021, the issuance of this type of bonds continues to set new record figures and increases its importance in the global fixed income market in practically all geographies, standing out among they Europe and the Latin American region.
The issuance of ESG bonds closed the year 2020 with an issued volume of more than 450,000 million dollars , which represents a growth close to 50% compared to the previous year. This growth was largely supported by the issuance of social and sustainable bonds (46% of the ESG bond market), which practically multiplied by four, with which issuers sought to support the necessary health and economic recovery after the pandemic.
In the first half of 2021, ESG bonds have become even more relevant in the fixed income universe, exceeding 1.5 trillion dollars in circulation and a volume issued to date that already exceeds the total volume issued at the close of 2020.
In a year where sustainable development undoubtedly has to be part of political and economic decisions, (COP26 and global economic recovery) the issuers of green, social and sustainable bonds have not been left behind and have contributed with these emissions to the fight against climate change, also betting on inclusive and sustainable growth.
Thus, it is necessary to highlight the important evolution and growth that sustainable finance is having in the Latin American region during the year 2021. Undoubtedly, all market players are aware of the challenges and opportunities that arise in the region in sustainable development matter. In this sense, it seems already evident that ESG bonds can and should play a relevant role in the region to mobilize funds for initiatives, projects and programs that contribute to the social and environmental development of Latin America .
Since September 2020 and during these months of 2021 the ESG bond market has incorporated a new type of sustainable bonds known as bonds linked to sustainability or in its English term Sustainability-Linked Bonds or SLBs, which although they have had a great acceptance worldwide , are being particularly relevant in Latin America.
Undoubtedly, the urgency of responding to the crisis has made it easier for social bonds and ‘sustainability-linked bonds’ to become relevant insofar as they allow us to know measurable impacts at the institution or project level. In this way, in Latin America we have seen how in the first six months of the year the volume issued in ESG bonds has tripled during 2020 (4.1bn USD in 2020 vs 12bn USD as of June 2021) being the format The bond linked to sustainability is the most used (approximately 80% of the cases).
It should be remembered that the ESG bond market in the region was initially supported by sovereign issuers, followed by financial institutions. However, this very important irruption of SLBs bonds in countries such as Mexico or Brazil, is explained by the interest of corporate issuers from the private sector to better explain how ESG issues, such as climate change, social justice, transparency and well-being human, are key concerns that are taken into account when defining your corporate strategy.
Through this type of bond, continuous improvement is sought in key aspects that affect the way in which companies act and through environmental or social indicators investors can annually monitor compliance with the ESG objectives set by each issuer in the short, medium and long term.
Today, most of the ESG bonds in the region are issued in dollar or euro currencies, thus accessing international institutional investors who have been showing a great appetite for this type of sustainable investment for several years.
However, we must be positive in the evolution of sustainable finance in the local bond market in the region. Despite the difficulties, this local market is deeper than a few years ago and there are already several regions that are defining local regulatory frameworks on sustainable finance to facilitate transparency, the standardization of this type of instruments, seeking to follow best practices and thus enhance the access of local investors to this ESG market.
It is positive that local markets are promoting the follow-up and observance of international standards when issuing ESG bonds. We are facing a great opportunity to attract capital oriented towards inclusive social and environmental development in the region; and, undoubtedly, relying on the best international market practices will help maintain the integrity and growth of this ESG bond market, which will generate the interest of international and domestic investors.