In the final quarter of 2021, the Colombian government placed its first green bond offering for 750 billion Colombian pesos (approximately $198 million) of sovereign indebtedness for funding green and sustainable projects. The local bond offering comes despite Colombia's risk rating recently being cut to "junk" status.
The Ministry of Finance and Public Credit, along with the National Planning Department, published the Colombia Sovereign Green Bond Framework. The framework outlines:
- the offering's criteria for the use of proceeds;
- a process for project evaluation and selection; and
- most notably, guidelines for the management of proceeds and reporting.
Through the offering, the Colombian government seeks to align its sustainable finance strategy with the wider climate change mitigation agenda worldwide.
While being traditionally a non-renewables exporting nation, the bonds are part of a broader national strategy aimed at improving "the country's competitiveness in a development path that is resilient to climate change [and] enables low-carbon growth in line with the commitments made in international agreements" according to page 6 of the document. Increasing the country's preparedness for energy transition and climate change is a clear policy goal, also showcased by the recent acquisition of ISA (a big player in Latin America's electricity carrier industry) by Ecopetrol (Colombia's much treasured oil company); both companies are state owned.
The framework tackles transparency and accountability in the use of proceeds and the selection of investment projects guided by the International Capital Market Association's industry standard Green Bond Principles.
Under the framework, the proceeds from the offerings will finance general budget purposes for recent expenses, current expenses and future expenses. The government will set off the general use proceeds by allocating an amount equivalent to the bond's net value for eligible green expenditures.
To select the eligible green expenditures, the government will:
- map existing environmental projects in the country's general budget;
- evaluate and screen projects using green criteria and the sustainable development goals;
- settle on eligible green expenditures; and
- approve a final green portfolio.
Investments will address:
- climate change mitigation;
- climate change adaptation;
- biodiversity conservation;
- pollution prevention and control; and
- natural resources conservation and management.
The Colombian government will "provide investors with Placement and Allocation Reports, as well as expected Performance and Impact Reports, for Eligible Green Expenditures with the information available at the time of reporting". Such reporting will follow indicators and categories outlined by the World Bank's Green Bond Proceeds Management & Reporting Guide. Finally, the use of proceeds towards eligible green expenditures will be independently verified by an external auditor. This review will verify whether the government's spending aligns with the framework's criteria.
For further information on this topic please contact Joshua Daza at Baker McKenzie by telephone (+57 1 634 1500) or email ([email protected]). The Baker McKenzie website can be accessed at www.bakermckenzie.com.