Market and feasibility study for a green bond facility in Latin America
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. 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.