Colombia offers new financial products to promote development and environmental sustainability

Drawing on international best practice, public and private banks in Colombia have begun to develop financial products designed to promote environmental sustainability and achieve development goals. Beginning in 2016 the country has issued a series of green bonds to support environmental projects. Building on this experience, Colombia has more recently begun to issue new financial products aimed at supporting socially responsible entrepreneurship through microcredit.

Eco-Bonds

In December 2016 Bancolombia became the first Colombian financial institution to launch a green bond. The product, which was designed to increase financing for private sector investments aimed at addressing climate change, had a maturity of seven years. The green bond raised COP350bn ($119.7m), and was acquired in its entirety by the International Finance Corporation (IFC). Following this, in April 2017 the domestic bank Davivienda issued one green bond worth COP433bn ($148.1m), with maturity of 10 years. Again, the IFC was the sole investor in the bond.

In August of the same year, as part of its role as a public entity, Bancóldex listed COP200bn ($68.4m) in five-year green bonds on the primary market. This initiative, which was the first of its kind in Colombia, was 2.5 times oversubscribed and demand reached COP510bn ($174.4m). The bonds were structured in technical cooperation with the Inter-American Development Bank. Support was received from the Climate Bond Initiative and resources provided by the State Secretary for Economic Affairs of Switzerland.

The bonds received a favourable second-party opinion from Netherlands-based independent ratings firm Sustainalytics. Consolidated figures for 2018 indicate that Bancóldex provided more than $343.7m in credit to projects for sustainable development and energy efficiency, exceeding its goal by 264%.

Following the successful allocation of the funds raised during its first issuance, Bancolombia launched COP300bn ($102.6m) worth of green bonds, this time on the primary market. The financial products, with a maturity of three-years, were 2.85 times oversubscribed. More recently, July 2018 saw the first issuance of green bonds by a private business, with domestic energy firm Empresa de Energía del Pacífico. The company launched COP420bn ($143.6m) in green bonds, with a maturity of 12 years, half of which were acquired by the IFC and half of which were purchased by mixed-ownership development body Financiera de Desarrollo Nacional.

Social Entrepreneurship

In addition to green bonds, other financing mechanisms have been developed to support sustainable projects. Bancóldex has led this process with the issuance of COP400m ($137,000) in so-called social bonds with a maturity of three to five years in May 2018. The bonds were designed to provide finance for projects that integrate excluded sectors into the formal economy, generate sustainable employment, reduce gender inequality and support rural development. These bonds, which were oversubscribed by COP1.2bn ($410,000), have been used to provided microcredit to 106,076 small businesses and initiatives throughout the country.

This was followed in November 2018 by the launch of COP400m ($137,000) in “orange bonds”, designed to provide financial support for the cultural and creative industries. The new bonds, which had a maturity of two to three years, attracted 122 investors and were 2.9 times oversubscribed. Colombia’s issuance of orange bonds forms part of a strategic commitment to encourage entrepreneurship and promote sustainable business models for companies in targeted fields.

In particular, this new financing vehicle is intended to increase productivity and competitiveness and create opportunities for Colombian firms to venture into new markets. In this manner, projects that finance or refinance themselves with funds drawn from these new bonds will also contribute to the country’s broader efforts to meet the objectives laid out in the government’s 2030 Agenda for Sustainable Development.