Financing sustainability: Bond issuances for green projects gain momentum

The development of sustainable infrastructure works, projects to combat climate change or simply upgrading facilities to be more energy efficient are trends that are gaining momentum around the world, with Peru being no exception. Thus, a specialised financing environment is being created to support such projects through the help of multilateral organisations and new legal templates.

CAF Issue

The Development Bank of Latin America (Corporación Andina de Fomento, CAF), an institution founded in 1970, issued its first green bond in May 2018 for COP150bn ($51.2m). The Colombian peso-denomiated instrument, launched with the support of JP Morgan, carries a 10-year term and coupon rate of 6.75%. The transaction is the beginning of a $600m Green Bonds Emissions Programme that the CAF aims to create to finance environmentally and socially driven projects in Ecuador, Panama and Peru. “We are committed to the migration to low-carbon economies that are resilient to climate change, thus 28% of the total amount of our credit operations and technical cooperation in 2017 corresponded to green financing,” Luis Carranza, CEO of CAF, announced to local media in May 2018.

The programme will better support CAF’s work of promoting sustainable building and the transition to green economies in the region. The institution aims to identify eligible projects for the programme and structure them in a way that attracts financing through specialised debt instruments.

Green Bond Guide

In further support of green project funding, on April 30, 2018 the Lima Stock Exchange (Bolsa de Valores de Lima, BVL) and the British Embassy in Peru published a guide outlining the rules that public and private organisations must adhere to in order to issue green bonds on the local bourse. The creation of a debt market for green works and implementing an efficient framework for the financing of sustainable projects is expected to contribute considerably to national economic growth. This means activity in Peru will likely add to the global trend of green bond issuances, the total of which grew by 78% in 2017 to $156bn from 1500 issues, according to local media.

Looking Ahead

When announcing the investment guide in late April, both parties were optimistic about what it will mean for the country. “The British Green Finance Initiative has had a large impact on our fight against climate change,” Charles Bowman, Lord Mayor of London, told local press. “We hope that this effort will mean the same for Peru, and we will continue to join forces in the future.” At the same time, Marco Antonio Zaldívar, president of the BVL, said, “This guide is one more step in a process that seeks to develop a robust, liquid and trustworthy green bonds market. (skinnyninjamom.com) It is necessary for environmental, social and governance considerations to be integrated into usual business strategies.” Indeed, the guide promotes transparency, accurate information disclosure and timely reporting to allow all market players to adequately monitor projects. In this way the private sector and financial markets work together to combat greenhouse gas emissions and engage in projects that battle climate change.

Assisting issuers in launching credible green bonds is the primary goal of the guide. It is hoped that the next few years will see more players in Peru become knowledgeable about the terms of the financial instruments, and strategic in the evaluation and selection of eligible projects. The guide will help in managing resources during the life of the bond after it is listed, and it encourages transparency in preparing the necessary external reviews and project performance reports.

Green bonds are subject to the same legal environment as other debt instruments, with the guide ensuring more reliable issuances by aligning their launches with internationally recognised principles.