What is the Green and Social Bonds market on Santiago Exchange?
The Green and Social Bonds Segment is an initiative aligned with the strategy for developing sustainability within Santiago Exchange, which has already implemented various initiatives related to this area in recent years. This has included the creation of the Dow Jones Sustainability Chile Index (DJSI Chile) in 2015, the development of Santiago Exchange’s Integrated Annual and Sustainability Report (2016), and the publication of its Guide to Responsible Investment (2017). Moreover, this represents a contribution to Chile’s efforts to address climate change, which include the development of a local capital market for issuing Green and Social Bonds.
The initiative also aims to provide the market with a new form of financing that provides issuers, investors and stakeholders in general with the opportunity to directly contribute to the main goal set forth in both the Kyoto Protocol (2005) and the Paris Agreement (2020) of mitigating the effects of global warming. It also addresses the principles of the United Nations Global Compact, which is related to the support that companies should provide in applying precautionary criteria to environmental problems, while also adopting initiatives to promote greater environmental and social responsibility.
Specifically, the Green and Social Bonds Segment will allow fixed-income instruments classified as a green and/or social bond to be issued. These instruments can then be traded using the same systems that Santiago Exchange provides for trading debt instruments.
Download the Green and Social Bonds Segment Guide here
Definition of Green Bonds
According to the "Green Bond Principles,” these are any type of bond instrument where the proceeds will be exclusively applied to partially or fully financing or re-financing new or existing projects that can be defined as "Green Projects" and which reflect the four principles.
The World Wildlife Foundation (WWF) has stated that “only a bond for which the issuer can demonstrate measurable environmental benefits, certified by an independent party according to such widely-accepted, fully developed standards, should qualify as a green bond.” Additionally, the Climate Bonds Initiative defines Labeled Green Bonds as those "bonds where the use of resources is set aside in order to finance new projects and re-finance existing projects, with environmental benefits." Finally, the World Bank defines a green bond as "debt securities that are issued to generate capital specifically to support environmental projects or those related to climate change."
Definition of Social Bonds
According to the, these Social Bond Principles are "any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible Social Projects and which are aligned with the four core components of the SBP.
The project categories accepted as green by both Santiago Exchange and Third-Party Verifiers must be detailed in the Green Bond Principles, the Social Bond Principles or defined and developed by the Climate Bond Initiative, as available on their respective websites.
International Standards Recognized by Santiago Exchange
A Third-Party Verifier is a consulting firm whose main objective is to check that the issuer complies with the provisions of the Green Bond Principles, the Social Bond Principles, or both, when applicable.
The Third-Party Verifier provides a final opinion to the issuer through a report requested in Spanish; the issuer may also request that the institution provides a copy in English. The issuer will then provide this document to Santiago Exchange to support the bond issuance. The Third-Party Verifier must be among the institutions approved by the Climate Bond Initiative.
In order to contribute to the development of this market segment in Chile and incorporate internationally-recognized best practices, Santiago Exchange has established a set of recommendations to be included in the report issued by a Third-Party Verifier both prior and subsequent to the issuance of a green and/or social bond.
Minimum Content for a Third-Party Verifier Report can be downloaded here