1 Sep 2020

Adapt or perish: Sustainability arrived to stay in the Peruvian Capital Markets Industry

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The adoption of sustainable practices and a breakthrough of ESG financing in Peru can be traced back to 2014 when a green bond was issued by a local company to fund a solar energy project.  During the same year the United Nations Climate Change Conference (COP 20) took place in Lima. This period is the milestone which set grounds to create a favorable landscape for ESG investment in Peru.

 

On 2015, by means of the Resolution No. 033- 2015-SMV/01, the Peruvian Securities Authority (SMV) required listed companies to disclose an annual sustainability report. The Peruvian issuers have made remarkable progress in adapting and implementing sustainable practices in their corporate strategy ever since.

 

On 2018 the efforts of the Lima Stock Exchange (LSE) in collaboration with the British Embassy, were crystallized with the publication of the Green Bond Guidelines for Peruvian issuers; a non-mandatory framework which outlines general terms for the issuance of green bonds[1] in the local market. Said framework has had an immediate positive impact, evidenced by the several inaugural green, social and sustainable bonds issuances which have taken place ever since.  [2]

 

On February 2020 SMV´s launched an update to the annual sustainability report including features in line with the new advances and trends of sustainability practices.

 

On April 2020, the Responsible Investment Program (Programa de Inversión Responsable), a group comprised of the largest Peruvian Institutional Investors which include local banks, pension and investment funds, insurance companies, among others, published Guidelines for a Responsible Investment Policy, advocating for Institutional Investors to take a sustainability approach in their investment decisions.

 

In sum, a clear message is being sent to the market: adopt sustainable practices at risk of perish in a long run.

 

Likewise, a relaunching of the Green Protocol approved in 2015 (an agreement with the Association of Peruvian Banks – ASBANC to promote investment practices aligned with sustainable development) is expected for the forthcoming months after the Ministry of the Environment announced in a series of online meetings held during July 2020, a joint work effort with the German Development Cooperation (GIZ) to present a new Green Protocol to be

centered around three strategic points: risk management, financial instrument proposals and institutional ecoefficiency, to be aligned with international standards and practices.

 

State-owned companies have not been exempted from the sustainability trend.

 

In 2015, the National Holding Fund for State Enterprises (Fondo Nacional de Financiamiento de la Actividad Empresarial del Estado – FONAFE) approved through Directive No. 068-2015/DE-FONAFE the Guidelines for Corporate Social Responsibility applicable to 32 state-owned companies (whose total value exceeded US$ 30 billion) that span the electric, financial, oil and gas industries, among others.

 

State action has been crucial to the development of the local capital markets regarding ESG deals, as the National Development Bank (COFIDE), is the largest issuer of ESG bonds in Peru having issued both Green and Sustainable Bonds, certified by Vigeo Eiris, respectively. Such trend is expected to continue in 2020, since COFIDE has announced that it was assessing the possibility of issuing the first Blue Bond in Peru.

 

The private community keeps it pace.

 

Following the trend set after the ICMA published in June 2020 the Guidelines of Sustainability-Linked Bonds[3], the LSE is preparing the launching of the national version of said Guidelines and updated version of the Guidelines for Green Bonds and Social Bonds, to tackle the adverse effects of COVID-19 on the Peruvian economy.

 

The LSE is prepared to attract funds of investors committed to ESG practices. In recent months its website has been updated and official -yet limited- information for the issuance of ESG bonds has been published. On a further stage, the LSE expects to contribute in the elaboration of a taxonomy for green, social and sustainable bonds (for which we expect an on boarding of the SMV as an ally). [4]

 

The Peruvian ESG financing market is ripe for growth and the following months will continue to see issuers making the most of better ESG financing conditions and attract foreign investors.

 

[1] On August 2020, Bosques Amazónicos (BAM), a company whose purpose is to protect and restore the value of the ecosystems of the Amazon to mitigate the effects of climate change and conserve biodiversity, became the first company of its kind to be listed in the Alternative Securities Exchange (Mercado Alternativo de Valores) of the LSE.


Article publised in Chambers and Partners

To access, visit this link: https://lnkd.in/g7NwhnW


[1] The Guidelines follow the main features which are set out in the International Capital Markets Association (ICMA) Guidelines for Green Bonds which are: (i) the use of proceeds; (ii) eligible project selection process; (iii) administration of proceeds and (iv) reporting.

 

[2] Concurrently with a booming in international environmental financing in the last decade, Peru experienced success with the Reducing Emissions from Deforestation and Forest Degradation (REDD+) program.

[3] One of the main features of Sustainability-Linked Bonds is the flexibility which enable to use the instrument as a transitional mechanism that would enable issuers to enhance their profiles through the achievement of certain key performance indicators (KPIs).

 

[4] On August 2020, Bosques Amazónicos (BAM), a company whose purpose is to protect and restore the value of the ecosystems of the Amazon to mitigate the effects of climate change and conserve biodiversity, became the first company of its kind to be listed in the Alternative Securities Exchange (Mercado Alternativo de Valores) of the LSE.

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