Key Impact Points:
- Latin America leads global blue bond issuance, accounting for nearly half of the $6.8 billion issued in 2023, with Panama’s Latinex poised to list its first blue bond this year.
- Blue bonds remain a niche market, representing only 0.2% of total global sustainable bond issuances despite their growing popularity.
- Lack of standardization and clarity in metrics and taxonomies is a key barrier to scaling blue bonds and attracting more investor participation.
Latin America’s Leadership in Blue Bonds
Latin America is emerging as a leader in blue bonds, a sustainable finance tool aimed at supporting ocean-friendly projects and clean water resources. In 2023, the region accounted for nearly half (49.1%) of global blue bond issuance, totaling $2 billion, primarily in the sanitation sector.
This year, Panama’s stock exchange, Latinex, plans to list its first blue bond, signaling continued growth in the region. According to Elizabeth Beall, managing director at Finance Earth, “There is a need for more regional co-operation and shared initiatives,” underscoring the importance of collaboration.
Why Blue Bonds Are Gaining Traction
The region’s ecological richness and long coastline of over 70,000 km play a significant role in driving interest in blue bonds. Janine Dow, head of LatAm at Sustainable Fitch, highlights the transition from polluting industries and the focus on biodiversity as key drivers.
“There is very much a focus on, ‘why are we doing this, why do we care about these labelled bonds, green or blue?’” says Dow, reflecting the region’s commitment to sustainable development.
Barriers to Growth
Despite increasing interest, blue bonds face significant challenges:
- Lack of standards and principles: Unlike other sustainable bonds, blue bonds lack formal guidelines, making it difficult for investors to assess eligibility and impact.
- Limited investor expertise: A Sustainable Fitch report notes a “scarcity of in-house expertise” regarding ocean ecosystems, which could hinder investment.
- Insufficient project readiness: Beall notes, “There are not enough investment-ready projects that meet the range of criteria across environmental, social, and economic factors.”
Dow echoes these concerns, stating that voluntary guidance from organizations like ICMA doesn’t “spell out” clear requirements for reporting or investment categories.
Unlocking the Potential of Blue Bonds
Expanding eligibility criteria and developing robust frameworks are essential for scaling blue bond investments. According to IDB Invest, the capital needed to finance sustainable ocean initiatives is readily available, with $90 trillion projected for infrastructure investments over the next decade, much of it near oceans.
In a joint 2021 report, IDB Invest and the UN Global Compact emphasized the opportunity for private companies to tap into the blue bonds market. S&P Global predicts that advancements in taxonomies could drive further issuance in Latin America’s sustainable bond market.
“The social indicators for the blue economy are one key ‘missing piece’,” adds Beall, emphasizing the need for deeper understanding and support for project developers to access blue bond financing.
Outlook
As Latin America continues to lead in blue bond issuance, the region’s commitment to sustainable finance offers hope for unlocking the potential of the blue economy. However, achieving this will require a unified effort to address standardization, foster investment-ready projects, and build investor confidence.
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