December 12, 2023 #ChileGlobal #ChileSustentable

Green Finance: the keys behind Chile's leadership 

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The issuance of thematic bonds, the creation of financial regulations and the government's commitment to climate change are part of the sovereign strategy that has positioned the country as a regional benchmark in this area. 

When talking about climate change, one of the greatest challenges facing the global community has to do with financing. Mitigation measures, the development of new technologies, the generation of mechanisms and legal frameworks that contribute to addressing the crisis and meeting sustainable development objectives are all impossible without the availability of resources.

"Without financing, it is difficult to carry out the commitments; it is a key implementing resource," says María Paz Gutiérrez, a specialist from the Ministry of Finance's Green Finance office, and part of the Chilean delegation to COP 28. 

In recent years, our country has promoted important efforts in green finance, with a series of initiatives that have made it the first country in the Americas to issue green bonds and the first in the world to issue sustainability bonds with a commitment to gender equity.

A "taxonomy" of its own

Chile is one of the pioneer countries in establishing a Green Finance Office. Reporting to the Ministry of Finance, "this entity works on an agenda that seeks to align financial flows", Gutiérrez assures. Through the definition of financial strategies, which among other things identify the main gaps by sector, this department seeks to promote mechanisms that allow green initiatives to be solved.

Among the initiatives currently being promoted by this office is a classification system or "Taxonomy", which in the words of Gutiérrez corresponds to the "classification of economic activities, which in the future will allow us to standardize and understand objectively which activities in our country are considered environmentally sustainable and which are not".

This is essential to detect "greenwashing", a practice that refers to the provision of inaccurate or false information about the sustainable characteristics of the financial products and services offered. 

Green and sustainability-linked bonds: pioneers in the region

One of Chile's main strengths in sustainable finance, which has contributed significantly to its global recognition, is the issuance of thematic bonds. In 2019, Chile became the first country in Latin America to issue a green sovereign bond with support from the Inter-American Development Bank (IDB) and, in 2022, it was a global pioneer in launching a thematic bond linked to a sustainability objective. 

Along these lines, in June 2023 the Ministry of Finance announced the placement of sustainability-linked bonds (SBL) for US$2.25 billion, which included commitments associated with gender equality, being a pioneer worldwide in incorporating this variable.

At present, the so-called thematic bonds (green, social and sustainability-related) represent 36% of the national public debt. The Treasury stated that this percentage is among the highest in the world and the challenge is to reach 50% in this type of instruments by 2026.

Green Focus

Since 2019, Chile has had a financial strategy aimed at climate change, a tool that few countries have, and on which a third update is being worked on. "As a country we have been well innovative in different aspects. The Ministry has developed an advanced methodology for monitoring public spending on climate change, which allows us to understand in greater detail the effectiveness and efficiency of this spending," says María Paz Gutiérrez. 

"We are the second country to institutionalize a council to carry out the measurement of natural capital and advise the President of the Republic on this matter, where only the United Kingdom also has a similar system," he adds.  

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