Low- and mid-income families in Mexico face a growing housing deficit, with house construction at its lowest levels since 2007 and housing prices growing at a double pace as inflation bites. Vinte's Domingo Valdes and IDB Invest's Rodrigo Navas Oreamuno explain why it is essential to develop housing solutions that create sustainable and social impact and how labelled bonds can fund such activities across the region.
Environmental Finance: Can you outline the importance of investing in sustainable homes for the low- and mid-income segments in Mexico and beyond?
Domingo Valdes: Investing in homebuilding and land developing in Mexico holds a significant importance and responsibility, since homebuilders design the way people live for the next 30 or more years. Vinte was born 21 years ago, with a high social impact business model, focused on developing communities and home construction. Since inception, Vinte's business model was based on a share value initiative, making sure that all the related stakeholders, those who live in a Vinte community, local communities and governments, financial institutions, mortgage providers, and finally, the company itself and its shareholders benefit.
Foreign direct investment is fuelling high long-term investments in different regions in Mexico with industrial potential, thereby amplifying the need for housing. Thus, there is a necessity to invest into providing a housing solution for the Mexican population. To capture this opportunity, the country needs investments towards water, energy and housing.
Rodrigo Navas Oreamuno: IDB Invest is the Inter-American Development Bank (IDB) Group's private sector arm. We have been working with Vinte for over 10 years on several transactions where we have provided several financial solutions, including direct funding, equity, partial credit guarantees or in their latest bond, as an anchor investor.
Climate change is the biggest challenge of our generation, and, if you look at housing, approximately 17 to 20% of global emissions are from housing construction. Sustainable housing can significantly reduce the consumption of water, energy and use of building materials. You can also have a direct impact on the local population. If you are middle- and low- income, less disposable income is used to pay for water usage or energy.
If you look at social housing across in Latin America and the Caribbean, there is a deficit of approximately 60 million homes. At IDB Invest's Manufacturing Unit, quality, affordable and sustainable housing is one of the key sectors we support since a house is usually the biggest and more important investment for a family, and there are several different ways in which it can improve lives.
EF: Rodrigo, can you outline IDB Invest's experience in thematic bonds?
RNO: Our focus is on financial innovation and mobilisation of private sector capital with sustainability at the front and centre of everything we invest in.
This project is very much aligned with mission; we believe that thematic bonds are a key instrument to support the UN Sustainable Development Goals (SDGs). We have participated in over 30 thematic bond transactions across 11 countries in the region now. And, it has been proven by many recurring issuers that they usually end up with better pricing when compared with a regular insurance. This benefits everybody.
When we participate as an anchor investor, we make sure that the issue will be successful. It's like a stamp of approval: even if the bonds have a second party opinion and they follow the International Capital Market Association (ICMA) principles, we also demonstrate this is a sustainable instrument by investing in it.
EF: What impact would you like to continue making in this sector?
DV: Companies must prioritise the quality and sustainability of their products in the long term. Vinte has developed communities for over 20 years and innovated by being first developer worldwide to certify an EDGE home – a green building certification – back in 2012 in a pilot programme with the International Finance Corporation (IFC) and currently is the developer with the most certified homes worldwide, with 14 thousand EDGE homes (including 1,758 EDGE Advanced homes). In Vinte's communities, not only are the houses designed to be green, but the infrastructure is also equipped with rainwater recapture systems and water treatment plants.
We also develop homes for clients with special needs and built the first Zero Gas Home for low income in Latin America, among other innovations.
Vinte's business model is replicable, as evidenced by our expansion into seven states across Mexico, following our ESG improvement goal, the last five issued bonds were green bonds" and the last two were labelled SDG Impact bonds. Our business is aligned with our commitment to sustainability, and to improving the lives of the Mexican families. Vinte plans to continue issuing green, social and SDG bonds in the short term.
RNO: In Mexico, there have several hundred bond placements by home builders. However, only three or four have been sustainable. There's huge potential for Mexico and almost every country in Latin America.
Having the opportunity to participate in such transactions and help our clients in more mature markets like Mexico is very important, but also, we have pioneered these kinds of issues in markets that are less known as well. For example, in Peru we did a social bond with a company called Los Portales. This was the first time this company had issued a sustainable thematic paper. We are also working on similar transactions in Ecuador as well. Our mission will continue to be to innovate and bring new instruments to markets that are less developed.
Domingo Valdes is chief financial officer of Vinte and Rodrigo Navas Oreamuno is director and head of manufacturing at the Corporates Division at IDB Invest.
