The Republic of Chile has completed the issuance of a new USD$2 billion, 20-year sustainability-linked bond, with interest on the bonds tied to the country’s performance on its climate goals. The transaction marked the first-ever issuance of a sovereign sustainability-linked bond, an instrument which is rapidly gaining popularity among corporate sustainable finance issuers.
Sustainability-linked securities, which are designed to incentivize issuers to deliver on sustainability goals with terms tied to the performance towards the targets, are the fastest growing segment of the sustainable finance market. According to a recent report by Moody’s ESG Solutions, the sustainability-linked bond market surged 10x in 2021 to $90 billion of issuance, with 2022 volumes anticipated to more than double to $200 billion.
The new bond was issued under Chile’s recently published Sustainability-Linked Bond Framework, which outlines the Key Performance Indicators (KPIs) being tracked to measure Chile’s performance towards its defined Sustainability Performance Targets (SPTs). According to the framework, the KPIs tracked by the bond include Chile’s reductions in absolute greenhouse gas (GHG) emissions, and the share of non-conventional renewable energy generation in the national electric system. The GHG SPTs include achieving annual GHG emissions of 95 MtCO2e by 2030, and a maximum GHG budget of 1,100 MtCO2e between 2020 and 2030. The renewable energy SPTs include achieving 50% electricity generation derived from non-conventional renewable sources by 2028, and 60% by 2032.
If Chile misses a target, it incurs a financial penalty with a step-up in the bond’s coupon rate.
According to Societe Generale, who acted as active bookrunner and joint sustainability structuring advisor on the deal, the offering was met with strong demand, and was 3x oversubscribed, with a final order book of approximately $6 billion.