Sustainable bond activity in Latin America stalled this year, but bankers expect a rebound amid persistent investor demand and impending UN climate talks in Brazil that will highlight the region’s environmental needs.
Latin America issued just $8.2 billion in green, sustainability and other labelled bonds in the first half of 2025, down 65% from $23.8 billion in the same period last year, according to a new report from Sustainable Fitch. The drop comes at a tricky time for financing environmental, social and governance projects, as the US government pulls back from ESG initiatives and threatens to dampen their momentum.
Despite the slowdown in issuance, bankers, investors and analysts see no sign of a lasting shift in demand for ESG-labelled debt from Latin America and say issuers still see the benefits of selling such bonds.
“There is absolutely no doubt in my mind that the LatAm issuer base continues to find value in the labelled sustainable bond market,” said Divya Bendre, Bank of America’s head of sustainable fixed income for the Americas, adding that “there continues to be momentum on the buy side.”
ALTERNATE SOURCES
With US issuers selling fewer ESG bonds, investors are looking elsewhere for sustainable debt and giving Latin American issuers an opportunity to “position themselves as credible, ESG-aligned alternatives,” said Daniel Gracian, Scotiabank’s director of sustainable finance for the region.
Latin American governments are aiding in that effort. Chile this year joined a few others in the region in finalizing a taxonomy that will help corporates track and communicate their environmental activities to global investors.
Brazil, which in November will host a major United Nations climate summit, is expected to follow suit soon.
“The groundwork being laid by taxonomies across Latin America is already influencing market behavior and preparing the region for long-term growth in sustainable finance,” Gracian said, noting that a third of local bonds sold in Mexico this year have an ESG label.
SLOW START
This year’s drop-off in ESG issuance was broad-based, with green, social, blue, sustainability-linked, and other labelled bonds all seeing a hit.
It wasn’t too surprising, Gracian says, given that the last two years saw strong volumes led by bigger-ticket sovereign ESG deals. But it does contrast with a boom in issuance in the broader bond market this year from Latin American issuers, who’ve been readily tapping international investors despite periods of tariff-driven volatility.
The macroeconomic uncertainty has prompted issuers and investors to focus more on the broader credit outlook than sustainability strategies, BofA’s Bendre said. The bank has continued to work with clients in the region on updates to sustainability frameworks and prepping for non-deal sustainability roadshows with investors this fall, she said.
A few issuers have decided to save their labelled transactions until they are ready to pursue sustainability-focused marketing efforts, Bendre said, thus ensuring they can maximize the benefits of a labelled bond.
“Those potential benefits are a high quality order book and robust level of over-subscription, which ultimately creates conditions for issuers to achieve strong pricing outcomes,” she added.
INVESTOR APPETITE
Investors, particularly those in Europe, haven’t shown much sign of retreating from sustainable bonds.
Sustainable equity funds in Europe have faced some outflows this year, according to a Morningstar tracker of global ESG portfolio flows. But it’s a different story for European sustainable bond funds, which recorded $12.8 billion in inflows in the first quarter and netted $10.1 billion in the second quarter.
Whether it be local pension funds or global asset managers, investor demand to finance the transition to a greener world isn’t something that “can be wished away,” said Kurt Vogt, managing director at Greenwich, Connecticut-based sustainable finance advisory firm HPL.
“Yes, politically there’s a lot of noise, but the transition is something that is baked into the investment theses of these asset owners,” said Vogt, a former HSBC investment banker.
‘FUNDING GAP’
London-based investment firm Ninety One remains “totally committed to the transition,” said Nicolas Jacquier, portfolio manager at the EM-focused company. He noted many clients have required allocations for sustainable debt, as they look to help close a “massive funding gap” to help emerging markets to meet global climate goals.
Lower volatility thanks to investors’ buy-and-hold strategies can make sustainable bonds slightly more attractive, Jacquier said. And while the other financial benefits of holding such debt are limited, the priority for ESG investors is knowing their funds are being allocated toward specific sustainability projects, he said.
Issuers are increasingly reporting data relating to their environmental and social objectives, something that is particularly relevant for sustainability-linked bonds, where issuers’ borrowing costs are partly based on whether they meet certain goals. Jacquier highlighted Uruguay’s 2022 SLB as an example, as the country flagged in an annual report that synthetic fertilizers were driving up emissions and putting it at risk of missing key targets.
“That rise in emissions is not what we wanted to see, but the fact that they had issued this instrument served to really focus minds on that trend,” he added.
BRAZIL BOOST
The region’s ESG market is expected to get a fresh catalyst in November, when Brazil will host the UN’s COP 30 climate change conference in the city of Belém, in the heart of the Amazon rainforest.
The meeting will “provide regional visibility on climate and sustainability issues, encouraging both sovereign and corporate issuers to align with global momentum,” said Scotiabank’s Gracian.
The COP 30 meeting is “going to give some strength to the market,” said Andrés Felipe Sánchez, head of Latin America at the Climate Bonds Initiative, offering a chance to boost ESG fund flows to the region.
If Brazil wraps up its national sustainable taxonomy ahead of COP 30, it will be a “tipping point for investors” focused on climate finance, he said.
Other countries are also expected to detail their climate transition plans — giving new investors a chance to finance those efforts and existing investors a roadmap for whether issuers are tackling the risks that climate change poses to Latin American economies.
“Investors are already aware that the risks derived from climate change are there, and those risks are going to get more evident in the long term,” Sánchez said.