Multilateral development banks are playing a major role in the creation and expansion of a green, social and sustainable bond market, known as thematic bonds, in Latin America and the Caribbean. What should investors and clients expect from them?

Thematic bonds are very similar to their standard, plain vanilla relatives—they are a traditional debt instrument of similar credit profile, but their use of proceeds contribute to the UN Sustainable Development Goals (SDGs) as demonstrated through additional reporting requirements.

Green bonds are used solely for environmental goals, while social bonds are dedicated to projects aimed at improving social welfare, and sustainability bonds combine both social and environmental objectives.

Even though globally the thematic bond market is expanding rapidly it still lacks depth, as issuances represent less than 1 percent of the global corporate bond market. Furthermore, in Latin America and the Caribbean thematic bond issuance is lagging global thematic volumes, despite being the most vulnerable region in the world regarding climate change. The opportunity for the thematic bond market to grow further is tangible as there are more green and social projects to finance and investors to participate.

by Carole Sanz-Paris | Ernesto Jiménez