The sustainable finance market in Latin America “has diverged from the rest of the world by emphasizing the importance of social factors,” according to a recent report from Fitch Ratings offshoot Sustainable Fitch.
“We attribute the divergence to the region’s pressing social needs due to high poverty and inequality rates, and the intrinsic connection between environmental and social factors in the region’s crucial agribusiness sector,” stated Sustainable Fitch in a summary of the findings.
A result, or parallel outcome, is that while green bonds reign across the globe, the largest portion of total US dollar issuance in Latin America comes in the form of sustainability bonds. This is followed by sustainability-linked bonds and social bonds, as Fitch details in its report, “Latin America Sustainable Finance Snapshot: Merging Social Considerations and Novel Financial Instruments in Decarbonization Plans”
“Sustainable Fitch believes the strength of sovereign sustainability-linked bonds in the region lies in anchoring countries’ public debt with climate-related targets and the Nationally Determined Contributions in the long term, widening the potential investor base while tackling persistent liquidity challenges,” stated the environmental arm of the New York-based ratings agency.
It added that: “ESG regulations in the region, although relatively new, are becoming mandatory in several jurisdictions, boosting ESG integration and disclosure. Regional and national sustainable taxonomies are swiftly growing, reflecting global patterns. These taxonomies aim to align with international standards, while also addressing unique local conditions and challenges.”