With the climate warming, sustainable finance is no longer just cool, it’s vital. The benefit for issuers is that it’s in demand and cheaper at a time of high interest rates.

This past summer, a heat wave left northern Mexico without enough water. A reservoir that supplies Monterrey, population 5 million, dried up. People protested and hijacked water trucks. The federal government had to quickly respond to quell the anger with a plan to build four waterworks to supply the region.

Droughts like this are no longer abnormal. Climate change has made hot spells and storms more frequent, severe and unexpected. Snow fell in parts of Brazil and Uruguay last year, while the Pacific Northwest baked.

This is putting pressure on companies and governments to respond, including with more money for climate adaptation and mitigation.

“If you don’t provide transparency right now and incorporate it into your balance sheet, [climate change] will generate additional financing in the future,” says María del Carmen Bonilla Rodríguez, Mexico’s deputy undersecretary for public credit.

Photo: María del Carmen Bonilla Rodríguez

In Mexico, 40% of the territory is exposed to catastrophic risk, or sudden disasters that could harm people’s livelihoods, in particular its more than 15,000 km of coastline, says Marta Kozak, CEO of Sustainable Finance Advisors. According to the World Bank, 68.2% of Mexico’s population and 71% of its GDP likely will suffer from climate change, including heat waves, droughts and flooding. A rise in sea levels could submerge the famed beach resorts of Cancún and Tulum, as well as swathes of the states of Campeche, Chiapas, Tabasco and Veracruz, according to a study by Climate Central, a US-based nonprofit.

Yamur Muñoz, head of capital markets at HSBC in Mexico, says companies must make climate change a “fundamental part of the future of business.” That’s not just because it is the right thing to do for the planet and humanity, but if not “you are going to start losing sources of financing, you are going to start losing customers, you are going to lose export markets,” he says.

More companies and governments are becoming aware of this.

“The road to sustainability is no longer an option,” Kozak says. “It comes with its challenges, but also with great opportunities.”

Latin The road to sustainability is no longer an option.

marta kozak

Mexico sold the equivalent of $10.3 billion in green bonds in 2022, up 14% from 2021, and plans to keep up the pace in 2023, according to Bonilla. Of the total green bond issuance in 2022, 31% was by the government, 37% corporates and 24% development banks, according to Bonilla. She says the proceeds from the next issues will go toward financing projects in biodiversity, water and solid waste in 2023 and 2024, mainly in the southern states of Chiapas, Guerrero, Oaxaca and Veracruz.

To encourage more issuance of such bonds, the Mexican government is drafting a green bond taxonomy, which is designed to provide reassurance for investors that green investments are for real and not greenwashing.

Kozak says the taxonomy “will be a great step towards the alignment of interests and an important step towards regulation and clarity on the path that all parties must take.”

More issuers are taking part in Mexico. The bottling company Coca-Cola Femsa sold MXN6 billion ($286 million) worth of social and sustainable bonds in a two-part deal in the local market in October, while the state of Mexico raised MXN2.89 billion in its first sale of sustainable bonds in the local market in September.


Mexican airport operator Grupo Aeroportuario del Centro Norte, or OMA, issued MXN4 billion in sustainability-linked bonds (SLB) in a two-part deal in the local market in March, with HSBC participating.

OMA’s SLB, the second in the world done by an airport group, was sold at 10 basis points below a traditional bond that had been issued a week earlier by rival Grupo Aeroportuario del Pacífico, according to Muñoz. OMA tied the new bonds to targets to reduce carbon dioxide emissions per passenger by 58% by the end of 2025 from 2022, promising to pay a step-up rate of 25 basis points if it misses the targets.

Bonilla says that while the rise in global interest rates is hitting bond issuance on the whole in emerging markets, green bonds are proving to be resilient and liquid.

Indeed, Chile sold its first sustainable bonds in local pesos in October, issuing CLP1 trillion ($1 billion) in 12-year notes after orders peaked at $3.5 billion. The bonds carry a 7% coupon, which is less than the 7.25% that had been expected. On the same day, Uruguay issued $1 billion in 12-year sustainability-linked bonds after orders reached as high as $2.9 billion. The new bonds have a coupon of 5.75% and priced to yield 5.935%, or 170 basis points over US Treasury bonds. The initial price talk had opened around 195 basis points.

“It is easier to access sustainable financing than general financing,” Kozak says.


The lower cost could encourage more issuers to line up such deals, as could more efforts by governments to promote cutting carbon emissions such as with greater use of electric vehicles, for example, or protecting forests and oceans.

“I think now with more of a strong signal from governments in terms of that this is a priority we’ll see more investors looking at it,” says Leisa Souza, head of Latin America at the Climate Bonds Initiative, a UK-based organization that promotes large-scale investments to reach a low-carbon world economy.

A lot of money is needed for climate projects. Latin America needs $3 trillion to $4 trillion in funding for the energy transition to net-zero carbon emissions by 2050, of which so far $600 billion has been financed, according to Kozak. To reach that goal, “a commitment is needed from all the actors of the financial system and the public sector,” she says.

Investors are keen, as seen in the strong demand for Chile’s and Uruguay’s recent sustainable bond deals. “They are a big deal nowadays because everybody’s involved in ESG, and so that is probably going to remain a good avenue for issuance,” says Alberto Bernal, chief emerging markets and global strategist at XP Investments in Miami.

Everybody’s involved in ESG.

alberto bernal

Carlos Fiorillo, managing director for Latin American business and relationship management at Fitch Ratings, says there is an increasingly large market of investors putting money into sustainable bonds. 

“You are going to see more and more transactions that are going to have a type of label with the idea of capturing the interest of investors who before perhaps did not look toward a sector, toward a country, because they had other priorities,” he says. “But to the extent that the Latin American countries manage to satisfy or provide that reference, it also makes there more investors that they can capture this financing.”

The other challenge, of course, is for issuers to live up to the sustainability targets. Uruguay, for example, pledged to reduce greenhouse gas emissions by 50% and preserve 100% of its native forests by 2025 as part of its $1 billion SLB. The government has said this will take the effort of the entire population. To help, the government recently launched a $5,000 incentive for public transport companies to change their diesel or gasoline vehicles for electric buses and taxis.

“We have tied ourselves to comply” with the targets, Uruguayan President Luis Lacalle Pou said in November. “Not only will we be penalized if we do not comply, but we will be rewarded by paying less interest if we do comply.” LF