Market and feasibility study for the establishment of the Latin American Green Bond Fund (LAGREEN)
Green bonds, as defined by the Climate Bonds Initiative (CBI) and the International Capital Markets Association (ICMA), are a promising new asset class for financing climate friendly investments through fixed income products. They can issued by companies, financial institutions, or national/sub-national governments. The German development bank KfW contracted IPC and its partner firm, responsAbility Investments, to assess the potential of green bonds in five key Latin American markets: Argentina, Brazil, Colombia, Mexico and Peru.
The purpose of the study was to identify both the constraints and potential for growth in these new green bond markets with a view to potentially establishing a dedicated public-private green bond investment fund, the Latin American Green Bond Fund (LAGREEN). Alongside the market assessment, therefore, IPC also proposed an appropriate design for such a green bond fund.
The IPC consortium:
- assessed the volume, structure and key stakeholders for past green bond issuances in Latin America and in each country;
- interviewed investors, issuers, and other stakeholders, with the goal of identifying a portfolio of public and private projects potentially fundable by green bonds over the short and medium term;
- identified both a pipeline of potential green bonds and the volume of investment that could potentially be financed by green bonds in Latin America over the upcoming 2-4 years;
- isolated the financial, technical and regulatory challenges, as well as potential risks, affecting the development of healthy green bond markets in the countries analysed;
- identified regional and national initiatives that may support the promotion of a green bond market, along with potential technical assistance needs; and
- recommended the appropriate structures and activities for both a technical assistance facility and a potential green bond fund.