Both countries developed innovative bonds with support from the Inter-American Development Bank to finance sustainable and social development projects
Ecuador and Chile are among the winners of the Environmental Finance Bond Awards 2020 granted by the Environment Finance, an online news and analysis service that covers sustainable development and green finance.
The Republic of Ecuador was awarded both the Innovation and Bond Structure and the Social Bond of the Year in the Sovereign category, while the Republic of Chile was awarded the Sovereign Green Bond of the Year. The Ecuadorian bond carries a partial guarantee from the Inter-American Development Bank (IDB) – which also helped the Chilean Finance Ministry structure its inaugural issuance and develop the institutional framework to issue subsequent green bonds.
Ecuador’s $400 million deal is the world’s first Sovereign Social Bond and carries a $300 million IDB guarantee, which significantly reduced the country’s financial costs and made the issuance. The bond is compliant with the Social Bond Principles of the International Capital Markets Association, making the bond more attractive to foreign investors. Proceeds will be used to support the government’s “Casa para Todos” program, providing access to affordable housing for more than 24,000 medium- and low-income families. It is expected that the $400 million mobilize some $1.35 billion in housing sector investments.
“This first Sovereign Social Bond is a historic milestone,” said Juan Ketterer, chief of the IDB’s Connectivity, Markets and Finance Division, when the Ecuadorian deal was launched. “It demonstrates how new forms of financing can be generated to promote social inclusion and equity.”
The Chilean deal was the first sovereign Green Bond issue in the Americas. The $950 million transaction was part of a $2.5 billion equivalent inaugural issuance (in two separate tranches in USD and EUR) from the country’s Finance Ministry. The IDB guided the development of the Green Bond Framework used to support the identification and selection of the projects, as well as the management of the funds and the reporting requirements. Proceeds will be used for a variety of priority areas, including clean transportation, energy efficiency, green buildings, renewable energy and water management. Such initiatives will help Chile meet its specific targets under the commitments signed in the Paris Agreement, such as reducing CO2 emissions by 30% by 2030. Besides aligning to the ICMA Green Bond Principles, the Republic of Chile bonds were certified under the Climate Bonds Standards.
The Chilean government said its goal for the benchmark bond is to further develop the market for such instruments and motivate other Chilean investors to bring their own Green Bond issuances to market. Chile aims to develop a green asset class that can help the country meet its sustainable infrastructure needs by attracting foreign investment. Indeed, in January 2020 the Republic of Chile issued two more tranches of the sovereign green bonds under the same Framework, bringing the total issued to date o USD 6.2bilion equivalent.
“Our initial issuances reflect Chile’s firm commitment on climate action and our interest in developing the green asset class,” said Andrés Pérez, head of international finance at the Chilean Ministry of Finance, upon receiving the award. “As the first sovereign to issue Green Bonds in the Americas, we look forward to continue breaking new ground in this growing landscape.”
The IDB is an active supporter of the Green Bond market in Latin America and the Caribbean, which the institution expects will help countries transition to green economies and contribute to mitigating the impact of climate change on the region. The IDB is working on a Green Bond Transparency Platform to bring greater transparency regarding the use of Green Bond proceeds and their environmental impacts, as well as provide comparability among bonds.
The Environmental Finance Bond Awards are granted annually, following the evaluation of an independent panel of judges drawn from leading investment firms.