By 2030, Latin American and Caribbean countries need to invest between 10% to 16% of their annual GDP to build the infrastructure to meet the climate goals of the Paris Agreement and promote just transition at the same time1.
Green bonds are effective capital market instruments that can drive institutional and private capital to prioritize the sustainability agenda, as their use of proceeds is exclusively applied to activities with positive environmental benefits.
While the Latin American green bond market has been steadily growing in the last few years, it only represents 2% of global green bond issuances2. Given the large infrastructure investment gap and the need for a green recovery, there is a great opportunity to further boost the market.
Financial institutions (FIs) play an integral role in mobilizing capital toward the implementation of low-carbon and climate-resilient solutions, as they act as natural aggregators of assets with green attributes. Green bonds can be an attractive source of funding for FIs who invest in projects that help mitigate the effects of climate change and build a more resilient future. Issuing a green bond is a strategic step for an FI, as it signals the institution's commitment to its sustainability strategy and highlights how it is directing financial flows to catalyze the climate action agenda. However, to achieve a successful issuance, it is key that the process leading up to the transaction is carefully managed.
This Reference Guide for Financial Institutions in Latin America and the Caribbean provides FIs with a step-by-step approach to preparing for a green bond. It addresses a range of challenges that FIs must navigate, including identifying a green portfolio, defining eligibility criteria aligned with sustainable finance taxonomies, developing robust indicators that encompass both output and outcome metrics, establishing a portfolio selection and evaluation process, defining the management of proceeds, and establishing a reporting process.
Notes:
1 IDB (2022). How Much Will It Cost to Achieve the Climate Goals in Latin America and the Caribbean?. Available here.
2 HPL's proprietary database estimates issuances of USD45 billion in green bonds; the global green bond market has been estimated at US $2 trillion according to CBI, see here.
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