‘Exciting growth’ predicted in LatAm green bonds

Janus Henderson report calls for coordinated policy to create better financing opportunities

Low issuance of green bonds in Latin America is limiting sustainable investment opportunities, a Janus Henderson report has said, even though there is potential for “sustainability-linked endeavours”.

The Janus Henderson Latin America Decarbonisation Report said the scale of issuance so far, at $45bn in absolute terms from 12 countries, is small for the region relative to the overall size of the global climate bond market, which now stands at more than $1trn. It said factors for this include the fact sovereigns aren’t leading the way with issuance and a lack of foreign investment.

“As countries seek to migrate to more sustainable infrastructures, issuing green bonds is a natural source of funding,” said Jennifer James, emerging market debt portfolio manager at Janus Henderson.

“For their part, investors have whole-heartedly embraced labelled bonds, owing to structural shifts in how ESG plays a role in investing. This combination, where supply and demand meet effortlessly, should be a strong tailwind for further growth in green bond issuance.”

Only 12 countries out of the 43 the report looked at had issued a climate bond. In 2022, Chile was the first Latin American country to issue sustainable bonds.

James expects other Latin American countries to follow suit. “Latin American countries have a lot of potential for sustainability-linked endeavours, which is an exciting trend for the growth of the green bond market,” she said.

Top 5 countries with highest renewable as percentage of total energy final consumption

CountryTEFC%
Haiti76.2
Guatemala64.1
Uruguay60.7
Paraguay59.2
Honduras50.1

Climate bond issuance, unweighted

CountryClimate bond issuance ($m)
Chile9000
Brazil8700
Mexico3800
Peru1100
Argentina735
Colombia684
Costa Rica504
Panama380
Uruguay361
Ecuador150
Barbados9
Dominica0.3

The report said when it comes to issuance, sovereigns have a large role to play. “Countries can raise debt at lower levels and help establish a reference rate for other entities,” it said.

Paul LaCoursiere, global head of ESG investments at Janus Henderson, added: “A collection of countries committing to issue green bonds – both sovereign and corporate – under common use of proceeds protocols, for example, would result in deeper liquidity pools and attract a wider international investment base.”

See also: – Listen to Paul LaCoursiere speaking to ESG Clarity on the ground at COP26

This, alongside uncoordinated policy – inconsistent net-zero targets for example – is stunting progress on decarbonisation. However, on the plus side, there are many decarbonisation efforts happening in the region, particularly when focusing on renewable energy. The energy crises of the 1970s, for example, were a catalyst for significant ethanol production in Brazil, the report noted, with rising oil import costs driving diversified energy sources in Uruguay and Guatemala, and hydropower in Brazil and Paraguay.

Capitalising on these efforts in renewables, aided by coordinated policy, will help sustainable investors in the region, the report added.

“A coordinated response to green financing at a pan-regional level would be a truly transformational solution to attracting green finance to Latin America,” LaCoursiere added.

“Although some markets have clear and ambitious policy frameworks and substantial use of capital markets financing to accelerate the transition to renewable energy generation, there is still a long way to go towards meeting net-zero ambitions across the region.”

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...