Social bonds gain ground in Latin America

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Latin America and the Caribbean was the region with the fastest growing thematic bond market globally. This context prompts interest in the impact of sustainable investment and the potential of social bond issuances in Latin America, as well as how the legislation has evolved in each jurisdiction. In this article, we deal with the current situation in Chile, Colombia, Mexico and Peru.

Over recent years, various players have spoken about sustainable investments, in which environmental and social factors are involved in investment decisions, and their investment processes are conducted by taking both traditional financial factors and non-financial elements into account such as the impact any given project will have on the environment or on society. Although the search for finance that takes these factors into account has not been easy, so called “thematic” bonds have started to emerge on securities’ markets throughout the world. These types of bonds, also known as Sustainable Development Goal or SDG bonds, comprise green bonds, social bonds and sustainable bonds.

For the International Capital Market Association (ICMA, 2021), social bonds are any type of instrument where the proceeds are used exclusively to finance or refinance, in full or in part, eligible new or existing social projects and which are aligned with the four core components of the Social Bond Principles (SBP). According to the standards in the PBS provided by the ICMA, these have to be framed in the following parameters: clean drinking water, sewers, sanitation, transport, energy, health, education and health, education and vocational training, healthcare, housing, employment generation or including through the potential effect of SME financing and microfinance, among others.

In the described context, BID Invest (2021) has reported that the global thematic bond market is expanding rapidly with US$700 billion worth of sustainable debt issued in 2020 alone; this is nearly double the previous year’s figure. It maintains that Latin America and the Caribbean has been the region with the fastest growth and investor interest is moving increasingly to developing markets.

Although social bond issuances are still new to the scene in Latin America, various multilateral institutions continue to see a considerable potential in their growth and mass interest in them, involving both large corporate issuers and government issuers of sustainable debt.



Sustainable finance is in full expansion in Chile, and a considerable and growing amount of interest is being seen from various market players.

One of the main drivers of the expansion of this type of finance in the country has been Chile’s participation in this type of issuances which, since 2019, have added up to approximately US$ 14.4 billion, accounting for 15.5% of its debt stock. Figures provided by the Chilean Ministry of Finance show that since 2019 thematic bonds worth the equivalent of US$ 14.4 billion have been issued: US$7.7 billion in green bonds, US$5.2 billion in social bonds, and US$1.5 billion in sustainable bonds.

A very useful tool in prompting this growth was the Chilean government’s implementation of a Sustainable Bond Framework (further information here) defining the environmental and social financing priorities in Chile, which include: (a) climate change: goal to be climate neutral in 2050, to be achieved through clean transport, energy efficiency, renewable energy, natural resources, use of land and protected marine areas, efficient and resilient water management or green buildings; (b) support for vulnerable groups in society; (c) pensions; (d) health, and (e) education.

Another key element in the growth of this type of finance is the Public-Private Green Finance Panel attached to the Chilean Ministry of Finance, whose objective is to define an agenda for dialog and joint work among the government, regulators and financial market institutions in relation to including the risks and opportunities associated with climate change in decision-making. The panel is led by the Ministry of Finance and its members are representatives of the Financial Market Commission, the Chilean Central Bank, the Pensions Regulator, the Chilean State Bank, the Environment Ministry, the Santiago Stock Exchange, the Chilean Electronic Stock Exchange (BEC), the Pension Fund Managers’ Association, the Association of Banks and Financial Institutions, the Chilean Insurance Companies’ Association, the Chilean Association of Investment Fund Managers and Association of Mutual Fund Managers.

Interest in this type of issuances in Chile has been expressed in both the private and the public sectors. Since 2019, we have seen a growing interest from various companies in having access to this type of finance, either with green and social bonds, or through corporate borrowing. This has prompted interest in regulating these bonds more accurately and efficiently, so we are expecting to see a greater amount of legislation on the subject in the short or medium term.



Sustainable financing in Colombia is in expansion. Since 2016 six green bond issuances have taken place involving a combined sum of over $2.8 billion pesos. Investors have had a large appetite for this type of issuances, prompting bids to cover in amounts up to 2.6 times higher than the offered sums. A large majority of the issuers of these securities were local financial institutions, which used the proceeds to finance projects related to renewable energy, pollution control and the efficient use of natural resources. Elsewhere, the first ESG linked sustainable financing transactions have been recorded in the country for the equivalent of €37 million in Colombian pesos, and having interest rates linked to the debtor’s performance in environmental, social and good governance matters. Moreover, an increasing number of what could be seen as green finance transactions are being conducted, of which an example is the application of international standards in environmental matters such as the IFC’s Environmental and Social Performance Standards.

In this context, the Colombian financial authority has shown extreme sensitivity in relation to the role the financial system has to play in supporting the transition towards a sustainable economy. According to the document on the risks and opportunities associated with climate change published by the Colombian financial supervisory authority (SFC), the goals of the institution's strategy on this front are “promoting management of the risks that climate change poses to the stability of the financial system” and “supporting the implementation of initiatives related to the transition towards a low-carbon economy and green growth”.

As part of this strategy, the SFC has engaged in a number of initiatives including its involvement with various international organizations (the Sustainable Banking Network –SBN-, the Network for Greening the Financial System (NGFS) and the Financial Management Committee belonging to SISCLIMA -the Colombian climate change body-), and surveys conducted among its supervised institutions in 2019 and 2021 aimed at identifying how institutions perceive environmental risks and opportunities for the industry and related to it, or their involvement with the responsible investment task force, among others.

Additionally, the SFC has added climate risk assessment to its supervision tools and included ESG in its Comprehensive Supervision Framework (a methodology implemented by SFC which incorporates the risks that could affect supervised institutions and the financial system as a whole).

Lastly, on the regulatory front, in April 2021 the SFC issued External Circular 007, 2021, applicable to pension funds, insurers and “capitalization” (i.e. capital building and savings) companies which includes ESG matters in those institutions’ investment processes. In the same area, a financial reform is currently undergoing the approval process which includes rules targeted at promoting the role of supervised institutions in tackling “climate change, preserving biodiversity and achieving other social and environmental goals by mobilizing and transforming funds towards a more sustainable and inclusive economy and applying environmental, social and governance (ESG) factors in the various activities composing that market; as well as determining the adoption of better standards in this area”.



According to information published by the Mexican Stock Exchange , in Mexico the amounts involved in issuances of green, social and sustainable bonds were 8 times higher than in 2015 (including sovereign bonds) at home and globally. Moreover, labeled bond issuances by Mexican institutions add up to 39, and with a 75% share, development banking is the sector that is investing the most in this type of bonds, followed by the corporate sector (31%) and government (22%). It also reports that part of the funds in projects financed with green bonds are spent on wind and solar power; the funds in projects financed with social bonds are spent on promoting business ownership and access by women to financial services, and the funds in projects financed with sustainable bonds are spent on basic infrastructure, pollution control and adaptation to climate change.

Issuances by the development banking sector are made in the context of their environmental and social policies, as happens with Banco Nacional de Obras y Servicios Públicos, S.N.C. (Banobras). Banobras published its Environmental and Social Policy to achieve better practices geared towards finance supporting development, sustainability and the closing of gaps in Mexico.

The policy contains principles and guidelines on social and environmental elements in the institution’s strategy, on management of its lending transactions, its governance structure and internal processes. 

Banobras’ Environmental and Social Policy applies to all the bank’s staff members and extends to customers in financing or refinancing transactions to carry out infrastructure and public service projects. It applies in particular to projects with international or multilateral financing that require implementation of the Banobras Environmental and Social Management System (SARAS), such as the Green Climate Fund (GCF).

This shows how Banobras’ Environmental and Social Policy is underpinned by corporate responsibility principles, furthering projects that will contribute to social welfare, and environmental responsibility initiatives, with goals relating to respecting the environment and preserving ecosystems.



Under Peruvian legislation, there are no specific rules on this type of bonds or additional requirements.

The local legislation does not contain any specific or particular definition for “social bonds”. The definition included by the Lima Stock Exchange is the one specified in the PBS. To such extent, the Lima Stock Exchange recently created a special section for social bonds (with a specific mnemonic code). For purposes of the abovementioned qualification, a framework prepared by the issuer or an independent third party should justify why it is considered that the projects could be eligible as social projects.

In the registration process for securities before the Lima Stock Exchange, based on the specifications in the PBS, for a bond to be treated as a “social bond”, the issuer must hire an independent third party to prepare a second opinion report. Additionally, to register securities as social bonds at the Lima Stock Exchange, the issuer must fulfill a number of requirements and obligations and, on fulfillment of the stipulated conditions, the Lima Stock Exchange will assign mnemonic codes beginning with “S”.

Later, after issuing a bond in the social category, the issuer or an independent third party has to prepare a validation report on the use of funds every year until the bond reaches maturity.

Peru has an interesting history in relation to thematic bonds. It is mostly green bonds that have been issued, and the market for them is dominated by non-financial corporations and by projects in the energy sector. It is said that the first green bond was issued in December 2014, internationally, by Energía Eólica the Peruvian wind farm operator, an indirect subsidiary of multinational energy company Contour Global.

Additionally, according to public information published at the Lima Stock Exchange (2021), to date three issuers have had their bond programs labeled as social bonds: Internacional de Títulos Sociedad Titulizadora S.A. (trustor: Colegios Peruanos S.A.), a bond securitization program, in the education sector; Caja Municipal de Ahorro y Crédito Arequipa S.A., a bond program in the financial industry (finance for small and micro enterprises) and  Corporación Financiera de Desarrollo S.A.- COFIDE, which issued the COVID Bond in 2021.

Lastly, in 2021, the Peruvian Ministry of Economy and Finance, through Ministerial Resolution No. 221-2021-EF/52, approved a document called Peru Sustainable Bond Framework, closely based on the ICMA's standards, which outlines principles and recommendations for the governance and issuance process with the aim of encouraging transparency and integrity in the increasingly growing thematic bond market.