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Treasury issues the first sustainable sovereign bond in the world linked to the SDG

Today Mexico becomes the first country in the world to issue a sustainable sovereign bond linked to the Sustainable Development Goals (SDG) for an amount of 750 million euros. With this issue, the Ministry of Finance inaugurates Mexico's sustainable financing programme and places the country at the forefront of innovation in sustainable financing instruments. In addition, the issuance allows the country to expand its investor base by accessing international funds committed to sustainable economic development. This bond was placed for a 7-year term (September 2027), offering a yield at maturity of 1.603% and paying a coupon rate of 1.350%. The operation reached a peak demand of EUR 4.8 billion, equivalent to 6.4 times the amount placed, and involved 267 institutional investors globally. The issuance of this bond is an important milestone in the development and innovation of market instruments for sustainable financing and confirms the confidence of international investors in the Mexican Government's commitment to development.

First “taxonomy” created to identify private sector solutions for investing in climate adaptation and resilience

NEW YORK, The Lightsmith Group (“Lightsmith”) today released the ASAP Adaptation Solutions Taxonomy (“ASAP Taxonomy”). This is the first peer-reviewed set of definitions and eligibility criteria specifically focused on climate adaptation solutions being offered by private sector companies. The ASAP Taxonomy was developed through the Adaptation SME Accelerator Project (“ASAP”), which is supported by the Special Climate Change Fund (SCCF) of the Global Environment Facility, Conservation International, and the Inter-American Development Bank and IDB Lab. It builds upon existing definitions and international standards around climate finance, such as the European Union’s Sustainable Finance Taxonomy, the Intergovernmental Panel on Climate Change, the Task Force on Climate-related Financial Disclosures (TCFD), and the UNFCCC Climate Technology Centre and Network (CTCN) Taxonomy, among others, in order to foster harmonization and uptake. The ASAP Taxonomy has been reviewed by a panel of global experts and is actively being applied to identify hundreds of private companies across the globe that offer climate adaptation solutions. “We need practical solutions to help us adapt to climate change now,” said Jay Koh, Managing Director of Lightsmith. A recent study by the University of Cambridge shows an additional $100 billion of global costs annually linked to extreme weather events – such as floods, heatwaves and droughts – can be expected by 2040. The UN Environment Program estimates the cost of adapting to climate change in developing countries alone could rise to $140 to $300 billion per year by 2030, and between $280 and $500 billion per year by 2050. Despite the fact that 75% of all national climate plans under the Paris Agreement reference climate adaptation, adaptation received less than 6% of the total $579 billion of climate finance in 2017/2018, with perilously little from the private sector, according to the Climate Policy Initiative. “Identifying companies that can help manage drought, flood, wildfire, supply chain disruption, disease, and other climate impacts is a critical first step to building resilience to climate,” added Koh. “Most of these companies do not call what they do ‘climate change anything’ but if we can find them, we can invest in and scale up their solutions as the challenge of climate change grows.” ASAP recognizes the important role that small and medium-size enterprises (“SMEs”) can play in supporting climate adaptation. SMEs generate at least 45% of employment and as much as 33% of GDP in developing countries. The ASAP Taxonomy offers a systematic approach to identify SMEs that produce technologies, products, and services that support adaptation to climate change (“Adaptation SMEs”) and enables investors and governments to target investment and support. “The timing of the new ASAP taxonomy is crucial. With SMEs in developing regions and especially Latin America and the Caribbean confronting both the economic fallout of the pandemic and worsening climate impacts, we should take full advantage of this new taxonomy to support them to continue to capitalize on the business opportunities to develop solutions for climate adaptation and resilience,” said Graham Watkins, Climate Change Division Chief of the Inter-American Development Bank. The ASAP Taxonomy specifically focuses on SMEs in developing countries but can be easily extended to apply to businesses of all sizes, operating in all geographies. The ASAP Taxonomy is comprised of (i) a definition of an “Adaptation SME”, (ii) eligibility criteria to determine what types of companies qualify as an “Adaptation SME”, (iii) classification systems for climate adaptation solutions, and (iv) a results framework to measure, monitor and report on climate adaptation- related outcomes. The ASAP Taxonomy can be used by investors, funders, companies, and other stakeholders to: -Identify climate adaptation investments, thereby enabling more accurate tracking and reporting; -Sets out a menu of classification approaches for categorizing, tracking, measuring and reporting climate adaptation solutions based on the technology, product, service provided; -Inform companies on how their solutions may support climate adaptation and resilience; -Provide initial guidance on approaches for measuring companies’ contributions to climate adaptation; and; -Create a framework that can be used to align climate adaptation and resilience investment strategies with international standards and definitions. “The release of ASAP Taxonomy is an important contribution to increasing private sector investment in climate change adaptation. Through a common language, the taxonomy will help classify climate adaptation business solutions and eventually support investors and SMEs understand market opportunities and track investments. The taxonomy’s focus on Adaptation SMEs will contribute to climate resilient and inclusive global economic recovery from the COVID-19 pandemic”, said Chizuru Aoki, Lead Environmental Specialist and Manager of the Least Developed Countries Fund and the Special Climate Change Fund. “The ASAP Taxonomy is a significant step toward building the case for climate adaptation as an investment asset class and mobilizing much needed capital flows to adaptation-focused SMEs,” said Agustin Silvani, Senior Vice President of Conservation Finance at Conservation International (CI). “Both investors and businesses will benefit from a better understanding of the scope of climate adaptation investing. CI congratulates Lightsmith and all involved in the production of this valuable resource.” By using the ASAP taxonomy, investors, funders, companies, governments, and policymakers can enhance the supply and uptake of climate adaptation solutions globally, and especially in the places where they are needed most. The full ASAP Adaptation Solutions Taxonomy can be downloaded here.

What remains to be done to get more green bonds on the market

The green bond market, still developing in Brazil, has growth potential. According to the latest data from the Inter-American Development Bank (IDB), the issuance of thematic debt securities, the so-called "green, social or sustainable bonds", totalled $328 billion worldwide last year, 57% more than in 2018. But Latin America and the Caribbean accounted for only 2% of that total. Created to promote sustainable financing in the country, the Financial Innovation Lab (LAB) conducted a survey of potential issuers and investors to understand the incentives and opportunities needed to participate in this market. From the issuers perspective, 4.6% cited a better price as a factor. Changes in regulatory frameworks, for example, will make more assets available. On the investor side, green bonds should be more attractively and competitively priced (6.43%). Investors are interested in sustainability, but still see their investment decision linked to risk-adjusted returns and liquidity. The lack of knowledge of both the market and the destination of resources is one of the biggest barriers to the entry of new players into the thematic bonds market, according to IDB finance specialist Maria Netto. In view of the need for greater transparency, given that 47% of bond issuers in Latin America still do not report on the destination of funds raised and the impact of projects, the IDB has created a platform for transparency on these assets.