Conflicting policies leads to market fragmentation
Better financing mechanisms could be available if more climate-related bond issuance enabled countries in Latin America to use the capital markets and help bridge the financing gap. Policy action is required as a supporting and enabling mechanism but, currently individual markets have divergent climate bond policies and frameworks. This results in market fragmentation, liquidity constraints, and creates obstacles to international investor participation in climate bond issuances. Governments across Latin America have a clear role to play in the energy transition and should create a unified framework and strategy to attract investment into green projects.
Janus Henderson calls for coordinated green policy framework across governments in Latin America
Janus Henderson Investors is advocating for a coordinated response. Convergent and consistent rules and regulations set by governments, on issues from technical standards to regulations of carbon intensive activities, would act as a catalyst for more rapid decarbonisation at a pan-regional level. It would also increase success of 2050 net zero commitments and accelerate the issuance of green bonds, tapping into the growing pool of dedicated assets with an explicit mandate to investment in a manner consistent with sustainability principles and climate focused investments.
Paul LaCoursiere, Global Head of ESG Investments at Janus Henderson, said: “A coordinated response to green financing at a pan-regional level would be a truly transformational solution to attracting green finance to Latin America. While some markets have clear and ambitious policy frameworks and substantial use of capital markets financing to accelerate the transition to renewable energy generation, there is still a long way to go towards meeting net zero ambitions across the region. A collection of countries committing to issue green bonds – both sovereign and corporate – under common use of proceeds protocols, for example, would result in deeper liquidity pools and attract a wider international investment base. Coordinated, consistent frameworks would be more likely, in our view, to encourage domestic capital formation and attract foreign investment supporting decarbonisation across the region.”
Jennifer James, Emerging Market Debt Portfolio Manager, said: As countries seek to migrate to more sustainable infrastructures, issuing green bonds is a natural source of funding. For their part, investors have whole-heartedly embraced labelled bonds, owing to structural shifts in how ESG plays a role in investing. This combination, where supply and demand meet effortlessly, should be a strong tailwind for further growth in green bond issuance. In 2022, Chile was the first Latin American country to issue sustainable bonds and did so against a backdrop of strong investor demand. We thought the bonds were competitively priced and served a good purpose, and we would expect other countries to follow on the back of this success. Latin American countries have a lot of potential for sustainability-linked endeavours, which is an exciting trend for the growth of the green bond market.”
