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Brazil-based Suzano is the world's leading producer of eucalyptus pulp and one of Latin America's largest paper producers. It issued a $750 million sustainability-linked bond last year. (Photo: Suzano)
Thiago Spercel, partner in the Securities and Capital Markets practice of Paul Hastings in São Paulo. (Photo: Paul Hastings)
Wednesday, November 24, 2021

The Rise of Sustainable Finance in Latin America

A closer look at GSS, green, blue, transition, social and sustainable bonds.


With the increased priority to environmental, social and governance (ESG) issues globally, particularly with regard to climate change, Latin America has experienced a significant increase in responsible investment and sustainable finance. Latin America’s tropical forests are among the most biodiverse ecosystems on earth, and highly vulnerable to the effects of climate change. The region’s economies are heavily reliant on extractive industries and agricultural and mining commodities, a context that makes ESG considerations even more important in relevant sectors like mining, oil & gas, power generation and distribution, infrastructure, forestry, agriculture, livestock, and fisheries.  (...)


Sustainable or GSS bonds are debt securities used to finance pre-defined sustainable activities, projects, or assets. (...)

Overall, 2020 was a record year for GSS bond issuances, surpassing the prior record volume seen in 2019, and 2021 is expected to continue this trend with even higher GSS bond issuance levels. In Latin America, Brazil is the largest market for GSS bonds, followed by Chile and Mexico. There are significant differences in issuer types between countries: Brazil is dominated by non-financial corporates, Chile by sovereign deals, Mexico by development banks, and Argentina by local governments. Energy is the most funded sector, with half of the region’s green bond proceeds targeting renewable projects, especially wind and solar. Energy is the industry with the highest share of GSS bond funding in all countries, except for Chile, where transportation ranks first.


Green bonds are “use-of-proceed” bonds intended to financing new and existing projects or activities with positive environmental impacts, including renewable energy, energy efficiency, clean transportation, green buildings, wastewater management and climate change adaption.

By late July 2021, GSS bond issuances in Latin America had reached $45 billion, a 70 percent increase from 2020.

A few notable green bond transactions in Brazil and Latin America are described below:

In 2015, Brazilian beef, poultry and animal protein producer BRF issued the first green bond in Latin America, raising EUR 500 million to finance projects focused on energy efficiency, reduction of greenhouse gas emission and efficient water management and waste.

In December 2016, Bancolombia, Colombia’s largest commercial bank, issued a green bond for 3.5 billion Colombian pesos (US$115 million), the proceeds of which were used to expand financial services for private sector investments that help address climate change.

In December 2016, Mexico City issued its inaugural MXN 1 billion green bond, raising proceeds to develop projects related to efficient use of energy, improvement in the supply and quality of drinking water, as well as sustainable transport. (…)

Blue bonds are emerging as an innovative financial instrument that helps to solve water-related challenges, create sustainable ocean business opportunities, and signal responsible ocean stewardship.  (...)

There are great opportunities in Latin America and the Caribbean for a thriving blue economy, with a coastline that extends over 70,000 kilometers and with 25 percent of Latin America’s population and 100 percent of the Caribbean’s population living on the coast. In some low-income countries and small island developing states, tourism alone and other important ocean-based sectors can account for over 20 percent of GDP, compared to 2 percent for OECD countries. (...)

For the region, blue bonds represent attractive sustainable growth prospects: (i) Chile has great potential as an offshore wind resource, and its proximity to the coast avoids transmission costs; (ii) Brazil has the second-longest coastline in Latin America, with the opportunity for integrating offshore wind energy to power oil platforms to help minimize adverse effects from oil and gas (O&G) operations; (iii) Colombia, Puerto Rico and the Argentine Patagonia have good potential for offshore renewable energy (ORE) development; and (iv) in Latin American drought areas (e.g., Colombia and the Caribbean Islands) the production of potable water via desalination is powered by offshore wind. (...)

Further in Latin America, IDB Invest is structuring the sale of what would be the region’s first blue bond, with proceeds to be used to finance maritime projects such as sustainable fisheries across the region and tourism developments in the Caribbean.

Transition bonds are a relatively new class of debt instrument used to fund a company’s transition towards a reduced environmental impact or lower carbon emissions. (...)

In Brazil, energy generation company Eneva launched R$168 million transition local bonds in 2020. The Eneva transition bonds raised proceeds to be invested in energy generation based on natural gas, with the potential to reduce greenhouse gas emissions and increase energy efficiency, by replacing carbon-based energy sources in the Brazilian states of Maranhão and Roraima.

Social bonds are “use-of-proceed” bonds intended to finance or refinance social projects or activities that achieve positive social outcomes and/or address a social issue. (...)

In Brazil, recent examples of social finance are (i) the Vivenda social bonds issued in 2018 to finance subsidized loans to low-income communities to pay for home improvements and renovations in 8,000 homes low-income and (ii) the Banco Daycoval 400 million reais credit line made available in 2021, providing credit to small businesses of low-income women. In Mexico, Patrimonio Autónomo Montes de María issued $209 million (760 billion Colombian pesos) senior secured UVR indexed notes, the first social bond tied to an infrastructure project in Latin America, guaranteed by the United States International Development Finance Corporation (DFC).

In 2020, Banco del Estado de Chile issued a social bond termed a “women’s bond”, raising $95 million to improve women entrepreneurs’ access to financial and non-financial services in Chile and to support the economic empowerment of women in the country.

The first sovereign social bond in the world was issued by Ecuador in 2020, for $400 million, to develop the public program “Casa para Todos”, intended to provide access to decent, affordable housing to more than 24,000 families.

Sustainable bonds are issues where proceeds are used to finance or re-finance a combination of green and social projects or activities. These bonds can be issued by companies, governments or projects that follow the Sustainability Bond Guidelines from the ICMA, which in turn are aligned with both the Green Bonds Principles and the Social Bonds Principles.

In Brazil, a recent example of sustainable bond is the $50 million and $120 million bonds issued by public sanitation company Iguá Sanamento, raising funds to invest in the reduction of water waste in its water distribution systems and increase coverage of clean water and sewage treatment to remote locations in the state of Mato Grosso. (...)


As the ESG products in the financial markets have constantly evolved, recent issuances are taking the format of sustainability-linked bonds, or SLBs, also commonly referred to as key performance indicator bonds (KPI bonds) and SGD-linked bonds.

SLB’s are growing in prevalence within GSS financing in Latin America. A few recent SLB transactions in Brazil and Latin America are described below:

$750 million SLBs issued in 2020 by Suzano Austria GmbH and its parent guarantor, Suzano S.A., one of the world’s largest pulp and paper producers, with the sustainability target of reducing carbon emissions by at least 10.9 percent until 2025 (as compared to 2015 levels), under the penalty of a step-up of 25 basis points in the interest rate. Suzano later issued new $1 billion and $500 million SLBs in 2021, with the sustainability targets of reducing water consumption by 15 percentuntil 2026 and increase the percentage of women in senior management positions to 30 percent by 2025, under the penalty of step-ups of 15 basis points (for the water consumption goal) and 10 basis points (for the diversity goal);

$500 million SLBs issued in 2021 by Klabin, another large pulp and paper producer, with the sustainability targets of reducing water consumption by 16.7 percent, increasing to 97.5 percent of recycling materials and reintroduction of at least 2 endangered species in forest areas, under the penalty of a step-up of 25 basis points in the interest rate;

$1 billion SLBs issued in 2021 by Natura, a large Brazilian cosmetics manufacturer, with the sustainability targets of reducing greenhouse gas emissions by 13 percent and increasing the recycling percentage of packaging materials until 2026, under the penalty of a step-up of 65 basis points in the interest rate. (...)


We anticipate that demand for sustainable instruments and GSS bonds (SLBs in particular) will continue strong in the coming years.

SLB offerings have been over-subscribed and priced at attractive interest levels and green premiums, with COP26 only accelerating this trend.

The volume of SLBs and performance-based bond issuances in Latin America is likely to surpass “use-of-proceeds” green and social bond issuances. Also, banks and financial institutions will likely become important issuers of GSS bonds, as recently observed in the Banco BTG Pactual, Banco BV and Banco Bradesco GSS bond issuances in Brazil.

We expect that standards and methodologies for sustainable finance will become stricter and more detailed, as a result of investors’ demand, increased government regulation and awareness against greenwashing. Disclosure standards of ESG topics will likely become more robust and more closely monitored by the investment community.

Thiago Spercel is a partner in the Securities and Capital Markets practice of Paul Hastings and is based in the firm’s São Paulo office.

Tara Giunta, Co-Lead, ESG and Human Rights Practice and Vice Chair, Investigations and Compliance and Cathleen McLaughlin, Partner, Corporate Finance and Securities & Capital Markets, also contributed to this article.

This article is an excerpt of a new report by Paul Hastings. Republished with permission.



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