Bancolombia first set foot in the market in December.
Colombia’s largest commercial bank issued a 350
billion peso ($116 million) green bond to local investors,
saying it would use the proceeds to fund private-sector
projects that address climate change. Davivienda followed in
April with a 433 billion peso deal, which the
Bogotá-based bank said was the largest green bond issue
by a private financial institution in Latin America.
On both occasions, the International Finance Corporation
(IFC) was the sole investor. But an investment banker in
Colombia says local bond buyers are coming around to the idea
of green investments. The IFC has suggested that Latin America
could fund more than $1 trillion in climate-focused projects by
2040, including some $25 billion in Colombia, with green
"When you have natural disasters like we do in Colombia,
green bonds are another way to push the infrastructure agenda,"
the banker says. In April, for example, flooding and landslides
in Colombia killed more than 250 people and damaged
The government has indicated its support for financing
projects that combat climate change. Clemente del Valle,
president of the national development bank FDN, has opened the
door for it to finance green projects with targeted debt
capital markets instruments.
"Next year is when we start to really leverage, so we will
look at all the options in the capital markets," he says. "We
want to get more active in energy, so we could look at green
Globally, green bonds are taking off. Moody’s
estimates that the market could reach $206 billion in 2017,
more than double last year's $93.4 billion. The US' withdrawal
from the Paris climate change accord is unlikely to hamper that
potential, say investors. In part, that's because the country
has accounted for just a sliver of the global green bond market
to date. It's also because of corporate borrowers like Apple,
which printed a $1 billion green bond in June in a show of
support for climate protection initiatives.
European issuers have a heavy presence in the green bond
market, but much of the recent activity has come from emerging
markets. China alone was responsible for more than a third of
total green bond issues last year. Latin America has been
slower to embrace the trend, with only seven trades between
2014 and 2016. But that could soon change as issuers and
investors become more comfortable with green bonds.
Mexico's afores, insurance companies and fund managers gave
a clear signal of encouragement earlier this year. In May 57
institutional investors, managing a combined $214 billion of
assets, signed a declaration of support for green bonds in the
Mexican market. Climate change represented a big risk to
society and the economy, and green bonds offered an opportunity
for institutional accounts, the declaration said.
Issuers had already seen appetite for green paper in the
local market. Mexico's capital, for example, became the first
Latin American city to issue a green bond late last year. It
raised $50 million to improve street lighting, public transit
and water treatment facilities.
In Brazil, a group of fund mangers has similarly committed
to backing development of a local green bond market.
Brazil’s national development bank BNDES is also
driving the market forward. It mandated local asset manager
Vinci Partners to manage a 500 million-real ($151 million)
sustainable energy fund in March. Two months later, it printed
a $1 billion green bond.
As investor enthusiasm grows on green bonds, the market in
Latin America may be limited by the interest from issuers.
Increasing numbers of environmentally friendly projects are
being bid out across the region. Mexico's energy reforms, for
example, have opened up financing opportunities for renewables.
"Mexico is moving to a market-driven situation, so you can
determine power prices," says Ralph Scholtz, the head of
project finance in Latin America for the Japanese lender MUFG.
"Part of this meant that auctions were conducted for renewable
solar and wind opportunities."
But financing for such projects is linked to engineering,
procurement and construction contracts. Bond investors are
typically reluctant to assume construction risk — and
new renewable energy projects are no exception.
Green bonds from corporate issuers are a surer bet. Familiar
players in the capital markets, such as investment-grade power
companies, state-backed lenders or robust financial
institutions, are best placed to tap this investor
Now, the pool of issuers able to raise money for projects
that benefit the social good is set to broaden. The
International Capital Markets Association, which determines
green bond principles, published guidelines in June on social
and sustainability bonds. Social bonds can raise capital for
projects with benefits to society, such as affordable housing
or food security. And sustainability bonds have both green and
social benefits. With its entrenched inequality, Latin America
may find the emerging financing sources a