With the future of the Paris climate agreement increasingly tentative, momentum toward greenhouse gas mitigation will continue in other ways. New financial products, such as “green bonds,” which unleash market forces to protect the environment, have grown rapidly, and have great potential.
Much of that growth has been in developed markets. Over the past few months, however, Brazil has taken critical steps toward accelerating green bond growth, indicating a more active future for Latin America and developing countries in promoting market-based climate initiatives.
The U.S. is currently the largest issuing country to date, according to the Climate Bonds Initiative, with about 16% of the roughly $694 billion global market. Apart from major issuer China, developing countries have a very small share of issuance, with Latin America at less than 1%.
Itaú Unibanco, Latin America’s largest bank by market value, is working with partners to change this. They see enormous green bond potential for Brazil—and progress there could encourage other developing countries with similar profiles.
Brazil has about 59 million metric tons of carbon stored in its forests, approximately 70% of Latin America's installed wind power capacity, and around 6 million hectares of responsibly-managed forests (certified by the Forest Stewardship Council).
Private sector leaders, such as Itau, are developing an ecosystem for green bond issuance to thrive. Itau Asset Management recently joined with a handful of other major banks operating in Brazil to sign the “Brazil Green Bonds Statement.” The statement, agreed by banks managing combined assets of nearly $500 billion, reflects its collective belief in the risk climate change poses to society and our commitment to foster a low-carbon economy.
As part of this initiative, Itau Asset Management will dialogue with other banks, with governments, and with international organizations to develop this market. They will also drive momentum toward the elements of a successful marketplace, including independent eligibility criteria for green bond issuance and increased transparency among issuers on the use of proceeds.
Other key organizations in Brazil are also building support for the green bonds movement. Joint actions such as that of the Brazilian Federation of Banks (FEBRABAN), the Brazilian Business Council for Sustainable Development (CEBDS), and the Climate Bonds Initiative, which launched the Guide for Issuance of Green Securities in Brazil, build awareness, support and encourage issuers.
Total green bond issuance in 2016 was at $81 billion, more doubling from the year prior, according to the Climate Bonds Initiative. By 2018, global issuance could reach $300 billion. As Brazil—and Latin America more broadly—build infrastructure around green bonds, and raise awareness, they will capture an increasing percentage of this market.
Educating investors—both retail and institutional—is critical. Environmental, social, and corporate governance issues are not just about philanthropy and citizenship; they are critical to the value of our investments, and thus the investment process. Responsible investing generates value for clients by identifying growth opportunities and reducing risk.
—Tatiana Grecco, Head of Portfolio Solutions at Itaú Asset Management