Uruguay paving the way for corporate green bonds

Corporate green bonds are close to becoming a reality in Uruguay following two successful sovereign issuances of this instrument.

Interest has been shown by investors despite a controversial provision in the sovereign paper that allows the Uruguayan government to pay a lower interest rate if it manages to exceed its climate change goals. 

“If we really want to reward issuers, countries and companies that overachieve their indicators, we should reward them, not just punish them when they don’t meet them,” Gonzalo Bava, finance director at Banco Santander Uruguay, said during a webinar hosted by Moody’s on the state of the country’s economy.

Uruguay issued its second green bond this week, raising US$700mn at an interest rate of 5.75%. The paper matures in 2034.

However, the performance of the bond is tied to the reduction of Uruguay’s greenhouse gas emissions and indicators of native forest conservation.

If the country fails to meet its goals on these two parameters, bondholders will be paid a higher interest rate, but the rate will be lower if Uruguay manages to surpass them.

Bava said that investors had shown opposition to this provision when the country issued its first green bond last year, but the country’s debt management unit – part of the finance ministry – managed to clarify the mechanism, enabling Uruguay to raise US$1.5bn from the first operation.

When it comes to corporate green bonds, José Luis Rial, head of finance at Uruguay’s leading dairy company Conaprole, said at the event that this is a topic that is being studied and that funds both domestically and abroad have been surveyed on their possible interest in such instruments, giving them a positive reception so far. 

“There’s a good scenario for companies to take the decision to include issues related to the environment,” he said. 

Corporate green bonds have already been issued by firms in countries such as Chile and Colombia.