Launch of green bonds in Latin America

KfW has launched a new fund for environmentally and climate-friendly investments in Latin America and officially presented it to the public at the climate conference in Glasgow. The financial services provider Finance in Motion will manage the fund, which is the first of its kind in Latin America.

LAGreen is a structured fund that prepares green bonds in cooperation with local issuers and makes so-called anchor investments - investments with a signalling effect. Green bonds are fixed-interest bonds used by actors in climate finance, such as state and private banks or project developers of renewable energy projects.

The bonds are assigned to specific - environmentally friendly - projects and are subject to binding and comprehensible criteria that are also monitored. The aim of the new fund is to mobilise private capital for climate-friendly investments and thereby contribute to achieving the Nationally Determined Contributions (NDCs). A first investment in a green bond of a bank in Costa Rica has already been made. The bond proceeds will be used to finance a green real estate development project with sustainable use of industrial, office and commercial space. Further investments are to be made in the coming months.

Different risk tranches make fund attractive

On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and the EU, KfW participates in LAGreen on a fiduciary basis with a current total of EUR 74 million. The fund is divided into various risk tranches, of which KfW covers the higher-risk tranches for the German government. This type of participation reduces the risk for private investors; this makes the fund more attractive for the private sector. The plan is to leverage public funds with private ones: every euro from public funds is thus intended to mobilise further funds from the capital market or from other development banks.

The LAGreen Fund was founded as a legally independent entity in Luxembourg. The target fund volume is €500 million by 2024. The fund is not only intended to finance climate-friendly projects, but also to boost the green bond market in Latin America as a whole.

Large financing gap in Latin America

There is currently still a large financing gap for climate investments in Latin America. According to estimates, there is a shortfall of more than 100 billion US dollars per year. This gap can only be closed with the help of private capital. Green bonds are an important instrument for this.

"The development of Latin American bond markets will decisively remove obstacles to economic growth and help overcome environmental and climate policy challenges," said Christiane Laibach, Member of the Board of Managing Directors of KfW, at the launch of LAGreen.

KfW is one of the largest issuers of green bonds worldwide. At the same time, it is also developing the market further: KfW representatives sit on the Executive Committee of the "Green Bond Principles" of the "International Capital Market Association", for example, and are actively involved in shaping international standards for this. KfW considers green bonds to be an indispensable means of achieving international climate goals.

LAGreen - Latin America's first dedicated green bond fund