IDB Invest and Produbanco issue Ecuador’s first sustainable bond with target-linked incentives

Photo: IDB Invest

This is the first sustainable bond of this kind in the country, and funds will be used to finance projects with social and environmental impact.

IDB Invest and Banco de la Producción S.A. (Produbanco S.A.) issued the first sustainable bond with incentives linked to meeting objectives in Ecuador. The $50 million issue has been fully subscribed by IDB Invest.

The resources from the placement will be used to finance the post-pandemic recovery of small and medium-sized enterprises (SMEs) in Ecuador. They will also fund green financing with a focus on efficient agricultural technologies, renewable energies, energy efficiency and resource efficiency, among others. This will allow Produbanco to continue advancing in the execution of the commitments and goals of the Banking Alliance for Net Zero Emissions (ABENC).

IDB Invest will also provide advisory services to Produbanco to define a roadmap that will allow it to achieve its commitment to zero net emissions by 2050. This roadmap will define the objectives and actions required to comply with the commitments and goals from ABENC.

The transaction is made up of two tranches, with $40 million destined mainly to support the reactivation and sustainability of SMEs, and $10 million, channelled through IDB Invest, from a blended finance component of the Canadian Climate Fund (C2F). This second tranche will be used to finance Produbanco's green portfolio.

C2F’s blended finance component includes an economic incentive based on compliance with key performance indicators that are aligned with Produbanco's objectives. To guarantee compliance with the indicators, some milestones will be measured, such as growth goals for green credits, decarbonization goals for the credit portfolio, and compliance with standards to be part of the Working Group on Climate-Related Financial Statements. (TCFD). If these objectives are not met, the issuer will pay a fee to investors.

As part of the bond issuance process, IDB Invest advised Produbanco on the design of the methodological framework for the use of funds, which contains the criteria for the selection, monitoring and evaluation of projects, aligned with the Association's Principles of Sustainable Bonds International Capital Markets (ICMA). IDB Invest also supported Produbanco in obtaining an independent verification of the methodological framework, known as a second-party opinion, issued by Sustainalitycs (Morningstar company), an external consulting firm specialized in this type of project.

With this issue, IDB Invest reaffirms its commitment to strengthen and support access to financing for SMEs in Ecuador, also contributing to the development of the capital market and thematic bonds in the region. IDB Invest will also continue to design and use innovative financing tools to leverage private sector investment and promote climate-resilient development.

This deal is expected to contribute to eight United Nations Sustainable Development Goals (SDGs): Zero Hunger (SDG 2), Gender Equality (SDG 5), Clean Water and Sanitation (SDG 6), Affordable Energy and non-polluting (SDG 7), Decent work and economic growth (SDG 8), Industry, innovation and infrastructure (SDG 9), Sustainable cities and communities (SDG 11) and Life on land (SDG 15).

This article was originally published by IDB Invest.