Colombia to Cash in on ESG Boom With Monthly Green Bond Auctions

(Bloomberg) -- Colombia plans to take advantage of the rise in socially conscious investing with the offering of its first green bonds.

The government will issue as much as 2 trillion pesos ($575 million) of the notes in monthly auctions in the second half of the year, and will continue the sales beyond that, said Cesar Arias, director of public credit.

The peso notes will fund renewable energy generation, fleets of fuel-efficient vehicles and projects that fight deforestation, Arias said in an interview on Thursday. They will likely have a 20-year maturity.

The sales will mark Colombia’s foray into Environmental, Social and Governance, or ESG, debt, which has gained favor with investors and borrowers. Globally, corporations and governments last year sold a record $732 billion of bonds and loans for socially and environmentally friendly projects, according to data compiled by BloombergNEF.

“Colombia has prioritized the local market for the development of its issuance strategy of green bonds which is a bit different to the approach some other sovereigns in emerging markets have taken,” he said.

Even so, many of the buyers in the local market are foreign investors, he added. The Finance Ministry is also laying the groundwork to issue a so-called social bond by 2022.

Colombia hired an outside company to review the process and provide assurances for investors that the debt proceeds will go to projects that meet ESG standards.

In some cases, governments have sold large ESG bonds but struggled to find enough verified projects on which to spend the proceeds. Colombia decided to set modest targets and issue more gradually to avoid this problem, he said.

Active Year

Sales of green TES, as they will be known locally, will be part of an active year of debt issuance for Colombia after the economy suffered the deepest slump in its history in 2020.

As traders bet on faster inflation in the U.S., the government is trying to lock in low borrowing costs in case interest rates continue to go higher. Colombia sold a 40-year bond this week, its longest-dated dollar bond on record.

It plans to structure a new peso-denominated bond with a 25-year maturity that will be issued in the first quarter, Arias said. Local currency borrowing should rise to as much as 70% of total issuance this year from around 50% last year, he said.

The Finance Ministry plans to pursue more debt swaps with the local market this year, he said. Most of the 16 trillion pesos of such exchanges last year were carried out with other branches of the government.