The time for green bonds has arrived in Latin America

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The pandemic is not that bad compared to what awaits us with climate change.

That is the warning that more and more experts repeat.

And Latin America, one of the places most affected by covid-19, is also one of the most susceptible to the shocks of the weather.

Hence, green appears in almost every conversation in the region about how to recover from this crisis.

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“The recovery must be painted green,” Mauricio Claver-Carone, president of the Inter-American Development Bank (IDB), reiterated this Tuesday. To go in that direction, the agency launched the Green Bond Transparency Platform together with IDB Invest, the group's arm with the private sector. This digital tool will improve confidence that investments in projects with a positive impact on the environment really are. “Investors want to make sure they really support green projects, but they also expect verifiable reports of such impact. If it is difficult to give these answers, reluctance is generated, ”said Claver-Carone.

The green capital market continues to take off, despite the economic crisis due to the new coronavirus. For Gema Sacristán, head of the Investment Operations Department at IDB Invest, 2020 marked "a new record where private sector issuers in the region assumed leadership." Indeed, according to data from BloombergNEF, since the creation of this type of bond in 2007 until last year, it has exceeded one trillion dollars (plus 828 billion euros) worldwide. However, Latin America barely represents 2% of that market, a very small fraction that amounts to 24 billion dollars (almost 20 billion euros) to date.

For Juan Ketterer, director of the IDB's Connectivity, Markets and Finance Division, this is because the Latin American market is “imperfect” due to limited access to information.

According to the specialist, half of the issuers of these climate bonds report on the use of the funds, and only 1% report the final impact of the investments.

"It is very complicated and expensive for investors to ensure that they are actually participating in green bonds," he said.

It is very complicated and expensive for investors to ensure that they are actually participating in green bonds

Juan Ketterer, IDB

That is what the platform created with

blockchain

technology will try to correct

,

or chain of blocks, which will make the information unalterable.

Thus, through this free access tool, bond issuers will be able to upload detailed reports of transactions, their performance and their impact on the environment, which investors and other market players will be able to consult without restrictions.

For now, there are five countries that appear on the platform: Argentina, Brazil, Chile, Costa Rica and Mexico with a total of 24 bonds related to energy efficiency, clean transportation, forest management, among other areas.

“From day one, we had 30% of the market on this platform,” assured Ketterer.

"Our first expectation is that in a short time we can have 100%."

The other expectation is that Latin American countries move ahead in this green market that the IDB Group has supported since 2016, supporting more than 30% of bond issues. "Latin America should be a big player and make a bigger market," explained Sean Kidney, director of the Climate Bonds Initiative. According to a report from this initiative, so far this year the issuance of climate bonds in the world is almost 30% higher than in the first months of 2020. In the region, Brazil and Mexico lead these new issues. "If we get the platform to be used throughout the region, we are going to see a higher percentage of emissions destined to achieve climate goals."

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