Latin America Advisor
Latin America Advisor
A Publication of The Dialogue
Will Sustainability Linked Bonds Work in Latin America?
Chile hopes to reduce CO2 emissions by producing 60 percent of its energy using renewable sources by 2032. This timeline is one of two KPIs in its sustainability-linked bond (SLB) issue. A coal-fired power plant is pictured. // File Photo: Chilean Government.
Chile recently began issuing bonds tied to its sustainable development goals. The sustainability-linked bonds (SLBs) are part of the Chilean government’s plan to sell $2 billion worth of environmental, social and governance, or ESG, bonds—the proceeds of which would go toward addressing greenhouse gas emissions—and provide incentives for a gradual transition to renewable energy. What are the main motivations behind the Ministry of Energy’s SLB issuance? How likely is the government to meet its key performance indicators (KPIs), and what happens if it comes up short? Will the SLBs attract a wider pool of bondholders, and how likely is it that other Latin American and Caribbean governments will start issuing similar bonds if Chile’s issuance is a success?
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Luisa Palacios, senior research scholar at the Center on Global Energy Policy of Columbia University’s School of International and Public Affairs: “Chile’s $2 billion issuance of sustainability-linked bonds (SLBs) represents the many creative ways in which emerging markets can finance the energy transition. The SLBs (with a 2042 maturity) were 4.1 times oversubscribed. This shows the huge demand for these types of instruments, which are undeterred by the current heightened geopolitical uncertainty. An SLB could be more impactful than a green bond from an overall climate perspective, given that its performance indicators are linked to Chile’s climate commitments under the Paris climate accords and are not linked to one specific project. The key performance indicators (KPIs) entail an emissions target of a maximum of 95 metric tons of CO2 equivalent (known as MTCO2EQ) by 2030 and a total carbon budget of no more than…”
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A sister publication of the Inter-American Dialogue’s daily Latin America Advisor, the weekly Energy Advisor captures fresh analysis from business leaders and government officials on the most important developments in oil and gas, biofuels, the power sector, renewables, new technologies, and the policy debates shaping the future of energy in the Western Hemisphere and beyond. To subscribe or for more information, contact Erik Brand, publisher of the Advisor, at ebrand@thedialogue.org.
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