Emerging markets are exploiting environmental, social and governance (ESG) measures to borrow and finance their power transitions, with Chile recently becoming the first country to factor bonds in particular related to sustainability goals.
In early March, Chile, which has been hit by a decade of drought, sold $2 billion in U. S. dollar-denominated sustainability bonds (SBLs), the first sovereign borrower to do so.
Unlike other green bonds that raise budgets to fund environmentally friendly advances, such as solar and wind projects, SLBs inspire positive responses for climate by incorporating a number of environmental targets, as well as a number of consequences for emitters if they fail to meet targets. Objectives
In the case of Chile, the bond establishes that the country will not be able to emit more than 95 tons of carbon dioxide and equivalent until 2030, and that 60% of its electricity production will come from renewable resources until 2032.
While sovereign bonds have been slow to enter the market, the SLB segment is one of the fastest developing ESG finance spaces.
Since Italian electric giant Enel first brought performance-overhaul design due to late 2019, SLB’s emissions portfolio has grown significantly, from $11 billion in 2020 to a record $110 billion last year, according to Bloomberg data. International credit rating firm Moody’s predicts this figure will reach $200 billion by 2022.
Chile’s SLB is just one example of how emerging markets are experimenting with cutting-edge, environmentally friendly financial tools.
As reported by the OBG, in September last year, the Government of Belize introduced a debt-to-nature shift to restructure its sovereign bond.
The deal saw Belize buy back its debt with a significant repayment, 0. 55 cents on the dollar, in exchange for greater efforts for its marine environment.
Since the preservation of marine ecosystems is for both Belize’s environment and its economy, the agreement demonstrates the option of combining financial, economic and environmental objectives.
The country is home to the world’s largest coral reef and its 125-meter-deep Blue Hole is one of the most productive dive sites in the world. Tourism accounts for about 40% of its GDP and workforce, while the fishing industry employs an additional 10%.
While this is not the first debt shift by nature (Bolivia reached the first such deal in 1987), the progression is an example of the varied tactics in which emerging markets seek to raise funds, especially given the developing foreign focus on ESG. Standards.
Blue bonds are another form of environmentally friendly financing. Like green bonds, blue bonds are debt securities issued for investments in green projects and the so-called blue economy.
The world’s first sovereign blue bond was introduced in 2018, when Seychelles raised $15 million from foreign investors to help finance the expansion of marine spaces and the governance of its fishing industry.
Since then, several institutions, Nordic Investment Bank and Morgan Stanley, have introduced blue bonds. In September last year, the Asian Development Bank issued its first Blue Bond, a 15-year, $151 million tool that will finance the oceans. related projects in Asia and the Pacific.
The expansion of sustainable finance offerings reflects the expansion of the broader ESG money market.
According to the Climate Bond Initiative (CBI), overall sustainable debt reached $1200 million last year.
This was basically driven through the green bond market, which hit an all-time high of $517. 4 billion, nearly double the 2020 total of $270 billion. The IWC predicts this figure could reach $1 billion this year.
Social, sustainable and transitional bonds also registered a significant expansion in 2021.
While Europe, North America and China are leaders on this front, several emerging markets are making contributions.
Chile, a new product of its recent sale of SLB, has proven to be a regional leader. The government is the largest issuer of ESG bonds in Latin America, with a combined price of $33 billion, and is the country in the world that has issued green bonds, social bonds and SBRs, according to the CBI.
Separately, in April, Saudi tourism allocation developer The Red Sea Development Company obtained an SR 14. 1 billion ($3. 8 billion) bond from 4 Saudi banks, with the budget committed to the construction of 16 hotels powered by renewable energy across the country.
Meanwhile, in a sign of the green future of Islamic finance, Indonesia in June raised a $3 billion sovereign sukuk (Islamic bond) that will fund sustainable growth projects in the country.
As countries continue to emerge from the Covid-19 pandemic and seek a zero-carbon future, cutting-edge debt tools aimed at sustainability can become exciting responses for governments in many emerging markets, whether from a monetary or political perspective.
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