Lack of capital market financing instruments delays decarbonization in Latin America – new report by Janus Henderson | Nation/World

LONDON AND DENVER–(BUSINESS WIRE)–February 9, 2022–

Limited political ambitions and a lack of private sector financing have held back faster progress on decarbonization in Latin America, according to a new study launched today by Janus Henderson Investors. the Janus Henderson Latin America Decarbonization Report analyzes decarbonization efforts in Mexico, Central America and the Caribbean, and South America against three metrics: renewables as a percentage of total energy mix, climate bond issuance as a percentage of total issuance of bonds and net zero target dates.

Zero net commitments not resulting in the use of green capital market financing instruments

Adherence, at least in principle, to the 2050 net zero goal is consistent across most of the larger countries in the region, and in several cases in the region, countries’ natural resource endowments have already been harnessed to produce renewable energy. Other investments in generating renewable energy capacity are also underway in the region, building on legacy projects and developing new capacity.

Some of the smaller countries in the region – such as Haiti, Guatemala and Uruguay – generate a significant share of their energy from renewable energy, thanks either to significant multilateral aid or to long-term strategic plans improve economic resilience. Eight of the 43 countries included in the analysis have not made net zero commitments by 2050, including Mexico and Venezuela.

However, broad net zero commitments have not yet translated into meaningful use of climate-related capital market financing instruments, such as green bonds. To date, net zero frameworks are a necessary signal of policy intent, but not yet a sufficient condition for large-scale financial market financing for decarbonization initiatives. Only 12 of the 43 countries included in the analysis have so far issued carbon bonds. Chile ranks first ($9 billion), followed by Brazil ($8.7 billion) and Mexico ($3.8 billion).

Issuance of climate bonds is small relative to the size of the region

The scale of cumulative climate bond issuance in Latin America currently stands at $45 billion in absolute terms across 11 countries at the end of 2021. This is small for the region compared to the overall size of the global market. climate bonds, which currently stands at over $1 trillion.

Limited issuance in Latin America has been driven by a lack of top-tier issuance from sovereign borrowers in the region, which hampers wider adoption of climate bonds by private issuers. Only Chile stands out so far as an issuer of sovereign green bonds (although countries such as Mexico and Ecuador have issued sustainability-related sovereign bonds). Likewise, although several large-scale projects are currently underway in countries such as Chile and Colombia, and more are coming online, the pool of investable projects remains limited compared to other regions of the world, especially in Asia.

Conflicting policies lead to market fragmentation

Better financing mechanisms could be available if more climate bond issuance allows Latin American countries to tap into capital markets and help close the financing gap. Political action is needed as a supporting and facilitating mechanism, but currently individual markets have divergent climate bond policies and frameworks. This leads to market fragmentation, liquidity constraints and creates barriers for international investors to participate in climate bond issuances. Latin American governments have a clear role to play in the energy transition and should create a unified framework and strategy to attract investment in green projects.

Janus Henderson calls for a coordinated green policy framework among Latin American governments

Janus Henderson Investors calls for a coordinated response. Convergent and consistent rules and regulations set by governments, on issues ranging from technical standards to regulations of carbon-intensive activities, would act as a catalyst for faster decarbonization at the pan-regional level. It would also increase the 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 invest in a manner consistent with sustainability principles and investments. climate-focused.

Paul LaCoursiere, Global Head of ESG Investments at Janus Henderson, said:A coordinated response to green finance at the 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 reliance on capital market financing to accelerate the transition to renewable energy generation, there is still a long way to go to achieve net zero ambitions in the region. A set of countries committing to issue green bonds – both sovereign and corporate – under common product use protocols, for example, would result in deeper pools of liquidity and attract a base. broader international investment. Coordinated and coherent frameworks would, in our view, be more likely to encourage domestic capital formation and attract foreign investment supporting decarbonization in the region.

Jennifer James, Emerging Markets Debt Portfolio Manager, said:As countries seek to migrate to more sustainable infrastructure, issuing green bonds is a natural source of financing. For their part, investors have wholeheartedly embraced labeled bonds, due to structural changes in the way ESG plays a role in investing. This combination, where supply and demand meet effortlessly, should be a powerful tailwind for continued growth in green bond issuance. In 2022, Chile was the first country in Latin America to issue sustainability bonds amid strong investor demand. We believed the bonds were competitively priced and served a good purpose, and we would expect other countries to follow based on that success. Latin American countries have a lot of potential for sustainability-related efforts, which is an exciting trend for the growth of the green bond market.

ENDS

Information source

The report analyzed data from 43 countries in Mexico, Central America and the Caribbean, and South America. Countries for which data is not available were not included in the analysis.

Top 5 countries with the highest renewable energies as a percentage of total final energy consumption

Country

TEFC%

Haiti

76.2

Guatemala

64.1

Uruguay

60.7

Paraguay

59.2

Honduras

50.1

Renewable energy source as a percentage of total energy mix (TECF): IRENA, https://www.irena.org/Statistics/Statistical-Profiles

Issuance of climate bonds, unweighted

Country

Issuance of Climate Bonds ($M) *

Chile

9000

Brazil

8700

Mexico

3800

Argentina

735

Colombia

684

Costa Rica

504

Panama

380

Uruguay

361

Ecuador

150

Barbados

9

Peru

1.1

Dominica

0.3

Source of climate bond issuance: *Climate Bonds Initiative, https://www.climatebonds.net/market/data/#country-map

About Janus Henderson

Janus Henderson Group is a leading global active asset manager dedicated to helping investors achieve their long-term financial goals through a wide range of investment solutions, including equities, fixed income , quantitative equities, multi-asset strategies and alternative asset classes.

As of December 31, 2021, Janus Henderson had approximately $432 billion in assets under management, more than 2,000 employees, and offices in 25 cities around the world. Based in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).

Source: Janus Henderson Group plc

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PUBLICATION: 02/09/2022 08:30 / DISK: 02/09/2022 08:32

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