The Republic of Chile in July issued a $5.812bn US dollar equivalent multi-tranche social bond offering consisting of a €1.75bn tranche due 2027 and 2036, and a US$3.75bn tranche due 2033, 2041 and 2061. It’s the largest emerging market sovereign transaction in 2021, and is the latest in a series of landmark issuances for Chile since its inaugural sovereign green bond issuance in 2019, the first in the Americas.
Integrating ESG into sovereign bonds
Sovereign ESG bond issuances have built momentum over the past year, mainly in emerging markets, as governments develop their agenda for sustainable development, and a growing appetite from investors globally to invest in a low carbon economy and support the post-pandemic recovery.
This transaction is Chile’s second cross-border hard-currency issuance under its new Sustainable Bond framework, published in November 2020. Earlier this year, the country launched pioneering $4.25bn multi-tranche green and social bonds across dollars and euros, the first-ever multi-tranche, dual-currency, dual-ESG label issuance.
Chile is not alone in its efforts to integrate ESG into sovereign bonds. In 2020, BNP Paribas acted as Lead Joint Bookrunner for Mexico’s €750 million seven-year sovereign Sustainable Development Goals (SDG) Bond, the first of its kind in the world. In 2021, BNP Paribas strengthened this partnership by acting as bookrunner for Mexico’s second SDG bond, which priced at the same spread as their inaugural one despite the eight-year tenor extension.
The rise of the S in ESG
Green bonds have been more common so far, but social bonds are gaining traction as world economies grapple with the long-term social impact of Covid-19.
Following a national law that created the Covid-19 Transitory Emergency Fund, Chile’s transaction focuses on social projects as outlined in the Sustainable Bond framework. The government can use the proceeds to fund a range of initiatives, including community support through job creation, access to education, food security, essential health services, and programs designed to prevent unemployment derived from socioeconomic crises.
Sustainable finance continues to evolve across Latin America, and sovereigns play a key role in driving this transition. BNP Paribas has been involved in several milestone issuances that have contributed to the region’s reputation as a home for innovation in sustainability, including supporting some of the transactions that have been part of Chile’s issuances of approximately USD $20.32bn in ESG bonds for Chile since 2019:
- 2019 | The first in the Americas: BNP Paribas served on Chile’s inaugural sovereign green bond issuance.
- 2020 | The first of its kind in the world: BNP Paribas acted as Lead Joint Bookrunner for Mexico’s €750 million seven-year sovereign Sustainable Development Goals Bond.
- 2021 | The first-ever multi-tranche, dual-currency, dual-ESG label issuance: BNP Paribas has served as Billing and Delivery Agent on the USD offering, and was one of five joint-lead banks on Chile’s pioneering $4.25bn multi-tranche green and social bonds across USD and EUR in January.
- 2021 | Furthering Mexico’s investment in sustainability: BNP Paribas acted as bookrunner for Mexico’s second Sustainable Development Goals bond, a 15-year, €1,25 billion issuance in July.
- 2021 | The largest emerging market sovereign transaction of the year: BNP Paribas acted as joint bookrunner on the Republic of Chile’s multi-tranche social bonds offering across EUR and USD.