Miguel – stock.adobe.com
For the past few years, the demand for sustainable finance in Latin America has been prolific. However, the agenda around sustainability has been largely in line with global trends. Now, as we turn the page to the next chapter, the next few years will mark the transition of sustainable finance in Latin America through its adolescence and towards maturity. As investor preferences mature, databases grow, and funds adapt, this will prompt a shift in sector preferences, ultimately spurring innovation in the sector.
Biodiversity is a topic that is critically important to Latin America. The region is home to the Amazon rainforest, essential biodiversity not only for the region but for the planet. It is also particularly vulnerable to climate change, heat waves and droughts leading to water shortages and agricultural challenges. For example, the impact of climate change on the Amazon Rainforest is already having a devastating effect inside Brazil.
As deforestation of the Amazon increases, this puts the massive ecosystem at risk of the Amazon dieback tipping point, which would see the rainforest transformed into a savanna. But, on the heels of the COP 15, where 200 countries agreed to the Kunming-Montreal Global Biodiversity Framework, biodiversity-linked projects are projected to be a significant growth area as nature-related key performance indicators (KPIs) are incorporated in green frameworks. In September 2022, Klabin, Brazil’s largest paper manufacturer and exporter, committed to reintroducing at least two endangered native animal species by 2025, and three by 2027 via a sustainability-linked loan. Deforestation, reforestation, sustainable agriculture, water and waste are all areas which Latin American sustainable finance innovates, with food, agriculture and supply chains at the forefront. Biodiversity will gain in popularity as an investment theme as stakeholders in the region seek sustainable solutions.
As countries in Latin America continue to further their development, social elements of sustainable finance are essential in building a future for the region’s people. Often described as the most complicated factor of sustainable finance, positive social impact has flourished in Latin America. This includes gender inclusion, socioeconomic justice, access to education and safe working environments, to name a few.
The focus of spending for sustainable finance in Latin America will continue to be more aligned with social projects in comparison to other regions. In fact, the region has been an innovator in the social elements of sustainability. In 2022, the Spanish engineering firm Acciona began financing on a project to construct and operate Line 6 of the Metro in Sao Paulo, one of the region’s largest public-private infrastructure projects. This project will have a transformative impact on the lives of approximately 600,000 users from traditionally underserved areas of the city, connecting residents in Brasilandia to the city center by slashing transit times from two and a half hours to twenty-three minutes. It will also generate an estimated 9,000 direct and indirect jobs with a specific focus of hiring women workers and avoiding 100,000 tons of CO2 emissions annually. The growth of social justice-focused financing will be a unique and transformative opportunity to support equity in the region.
Latin America holds significant promise for renewable energy development, making it an ideal region for sustainable initiatives. An abundance of natural resources, such as sunlight and wind, creates favorable conditions for solar and wind energy projects. The region’s diverse geography allows for a variety of renewable technologies, including hydropower and geothermal to be effectively implemented as well. According to
Sustainability is a tremendously important part of the region’s future. It will be a pioneer in the next chapter of sustainable finance, leading in biodiversity, social-impact projects and the development of renewable energy ventures. Its leadership extends beyond traditional boundaries, charting a course that other regions are likely to follow. In the unfolding narrative of sustainability, Latin America emerges not just as a participant but as an architect, shaping a sustainable future that reverberates globally.