Market Insights

Top corporates recently gathered for the annual LatinFinance Banks and Deals of the Year Awards Ceremony in New York. Select attendees also had the opportunity to join the Latin America Capital Markets Summit, sponsored by Scotiabank, where they heard the latest insights on sustainable finance from the region’s leaders.

In particular, attendees at the panel discussion ‘Sustainable Capital Markets: Innovating for the Greater Good’ heard how sustainable finance is evolving across Latin America and the Caribbean, the rise of social, sustainability-linked instruments, and the drive to strengthen sector transparency and oversight.

ESG evolves in Latam

Daniel Gracian, Scotiabank’s Director of Sustainable Finance for Latin America at Scotiabank, talked about the recent evolution of ESG financings and noted that “After exponential growth in the sustainable finance market in 2021, globally and in Latin America we saw somewhat of a slowdown in 2022. While this was mainly market driven, an important key theme in Sustainable Finance, was about carefully defining what ESG and sustainability actually means, particularly in the financing and capital markets space. For 2023, it’s all about putting ‘guardrails’ around ESG, including definitions, regulation and taxonomy so the investment community feels confident they understand what issuers are doing, and how it all aligns with global and regional policies and treaties, such as the Paris Agreement. Now we are looking forward to several impactful global, regional and country-level initiatives to clarify all that.”

There was agreement on the need for more collaboration, among fellow panel participants, who hailed from several of the continent’s leading public and private sector issuers of green and sustainability-linked bonds and loans.

Executives from Mexico’s Comision Federal de Electricidad and Chile’s CMPC described their efforts to clearly map their debt issuances to in-depth ESG frameworks, including descriptions of use of proceeds and targets, to help investors gauge performance and the issuer’s commitment to sustainability.

“We believe it’s very important to publish a solid ESG framework, since it both helps investors see how we are working, and it also helps us as an organization align our goals with our operations and projects,” explained Fernando Hasenberg, CFO of multinational paper producer CMPC. “This is particularly true for sustainability-linked facilities since these instruments enable us to aim for higher standards and longer-term objectives, beyond specific projects.”

Driving regional social development

Both Héctor Iturribarria, Financial Planning Manager at CFE, and Juan Pablo Mata, Grupo Mariposa CEO, noted the potential impact on the region’s social development as sustainable finance focuses more on the ‘S’ in ESG. “As a company, we are very close to the communities of Latin America and we want to help ignite the ESG agenda to unleash the region’s potential,” observed Mata. “I’m glad to hear there’s growing traction to help companies have a real social impact.”

Scotiabank’s Gracian noted how, since the global pandemic, social-related ESG issuances have grown in popularity, compared to previously-dominant green bonds and loans: “However, one complexity we face is that there is still no taxonomy for the social aspects; whereas, there are now stronger definitions and guidelines for green and environmental bonds, loans and their use of proceeds. That said, since the social aspect is so important in Latam, I expect that, moving forward, innovation around taxonomy definition and KPI registry will come out of this region.”

Gracian added that investors will increasingly embrace sustainability-linked issuances as more defined metrics are established, and science-based tools emerge to help dedicated due diligence teams assess and analyze issuers’ targets and performance. This will happen alongside the continued focus of issuers on annual impact reporting and third-party verification. 

Inspiring innovation 

To conclude the panel discussion, speakers agreed that innovation will continue to percolate in the region, ultimately becoming a fundamental part of doing business across all geographies. Sustainable finance, in its various forms, will continue to evolve to integrate more financial vehicles and strategies, with corporates taking the lead, inspired by the pioneering efforts of sovereigns and other public institutions to bring green, social and sustainability-linked instruments to market. Gracian noted, “We see that investors are increasingly focusing on the actual ESG strategy and how it has been deployed within companies, even in conventional deals, signaling that a focus on sustainability will become cross-organizational and the norm for everyone eventually.”

Scotiabank is well positioned to advise and execute on these emerging trends, demonstrated by the numerous LatinFinance awards received during the event. Among them, Scotiabank earned ‘Sustainable Finance Bank of the Year’ for Latin America and the Caribbean, and ‘Investment Bank of the Year’ in both Chile and Colombia. The Canadian-based Bank also earned five ‘Deal of the Year’ awards for ‘Corporate High-Grade Bond of the Year’, ‘Quasi-Sovereign Bond of the Year’, ‘Subnational Deal of the Year’, ‘Sovereign Local Currency Deal of the Year’, and ‘Corporate Liability Management of the Year’.

For more information about Scotiabank’s Wholesale Banking solutions and opportunities, please contact:

Daniel Gracian
Director, Sustainable Finance

Phone: 416-845-7906