COLOMBIAThe First Sovereign Green Bond in
Local Currency in Latin America

CASE STUDYJuly 2022

1818 H Street NW
Washington DC 20433
USA
Farah Hussain
Senior Financial Officer
Financial Products and Client Solutions
The World Bank Treasury
E fhussain@worldbank.org
T +1 (202) 473-2540
W http://www.worldbank.org/sustainablefinanceadvisory
COLOMBIA: The First Sovereign Green Bond in Local Currency in Latin America
July 2022
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TABLE OF CONTENTS

i

Table of Contents
Acknowledgments.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . iii
Abbreviations.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . iv
Foreword.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . vPreface.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . vii
About the World Bank Group: Mission and Strategy.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . ix
About the World Bank Treasury.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . xi

1	

OVERVIEW OF ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE INVESTMENT AND SUSTAINABLE
BOND LANDSCAPE.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 1

2

COUNTRY CONTEXT .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32.1 Colombia’s Macroeconomic Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Recent Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Macroeconomic Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Colombia’s Sovereign Debt Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Colombia’s Debt Management Strategy 2018–22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Colombia’s Environmental Context. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3

SOVEREIGN GREEN BONDS.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
3.1 Rationale and Motivation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Colombia’s Sovereign Green Bond Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Use of Proceeds, Governance, and Management of Proceeds. . . . . . . . . . . . . . . . . . . . . 18
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Process for Project Evaluation and Selection (Governance). . . . . . . . . . . . . . . . . . . . . 22
Management of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 External Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

3.5 Transaction Execution Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Roadshow Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Executors and Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Auction Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.6 Issuance Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Issuance of Twin Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Issuance Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.7 Post-Issuance Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Allocation Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Performance and Impact Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.8 Key Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4

FUTURE OPPORTUNITIES .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33
4.1 Expanding Beyond Green Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Enhancing Engagement with Investors on ESG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5

CONCLUSION.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35

References. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37

Acknowledgments
Farah Imrana Hussain and Rodrigo Silveira Veiga Cabral (World Bank Treasury) led the preparationof this report. The primary author of the report was Prajwal Baral (Consultant, World Bank Treasury).
Special thanks to Ana Carolina Diaz Zuleta (Consultant, World Bank Treasury) for her extensive input
and feedback, as well as to Andres David Pinchao Rosero (Consultant, World Bank), Claudia Maria
Marin Daza (Consultant, World Bank), Julian Lee (Senior Environmental Specialist, World Bank),
Paolo Dudine (Senior Economist, World Bank) and Helena Cristina Dill (Consultant, World Bank
Treasury).
The Colombia Sovereign Green Bond Framework (2021), Ministry of Finance and Public Credit(MHCP); Second Party Opinion (2021), Vigeo Eiris; and Presentation on Colombia Sovereign Green
Bond Framework (2021), MHCP were extensively referred to and referenced while preparing thiscase study.
Preparation of this report would not have been possible without the support of the MHCP.
The Nationally Determined Contributions Support Facility, a multi-donor trust fund created tofacilitate implementation of nationally determined contributions that countries pledged under
the Paris Agreement in 2015, financed preparation of this report. We appreciate their generous
support.
The team thanks the World Bank GSD Creative Services for editing and designing this report.

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

Abbreviations
CO2

Carbon dioxide

CONPES

Consejo Nacional de Política Económica y Social

COP

Colombian pesos

DNP

National Planning Department

ESG

Environmental, social, and governanceGDP

Gross domestic product

IBRD

International Bank for Reconstruction and Development

ICMA

International Capital Market Association

IDA

International Development Association

IDEAM

Institute of Hydrology, Meteorology and Environmental Studies

MADS

Ministry of Environment and Sustainable Development

MHCP

Ministry of Finance and Public Credit

NDC

Nationally determined contribution

SDG

Sustainable Development Goal

TES

Treasury bonds

WBG

World Bank GroupFOREWORD

Investments in Colombia have a positive multiplier effect on furthering global sustainability,
decarbonization, and biodiversity. Colombia is the second most biodiverse country in the worldand has the greatest biodiversity per square meter. It ranks first in diversity of birds and orchids andsecond in variety of plants, amphibians, and freshwater fish. Its biodiversity, together with its humancapital and ethnic and cultural diversity, are key factors in the country’s economic development.
Colombia is committed to preserving 30 percent of its territory as protected area, reducing
greenhouse gas emissions by 51 percent by 2030, and transitioning to a carbon-neutral economy by2050. It has recently enacted and is implementing four laws to achieve these goals: clean transportact, environmental crimes act, energy transition act, and climate action and decarbonization act.
In line with these national policies and strategies, the government has been promoting an agenda
to protect natural resources and mitigate the social and economic impacts of climate change. This
agenda focuses on enabling the country to meet its Sustainable Development Goals by establishingmeasures that support mobilization of resources through green finance, including development ofgreen bond markets; adoption of a national green taxonomy; and incorporation of environmental,social, and governance (ESG) criteria into methodologies to value risks on infrastructure projects
structured through public-private partnerships.
In 2021, Colombia issued its first sovereign green bonds, becoming the first emerging-market
economy to place these securities through local auctions in local currency and to adopt theGerman green twin bonds approach in the domestic market.1 These financial innovations foster
development of the local green bond market; enhance transparency, liquidity, and efficient pricediscovery; and diversify the country’s local bond investor base. Environmental Finance awarded theGreen Bonds 2031 the Green Bond of the Year—Sovereign in 2022.
After adopting its sovereign green bond framework, Colombia issued twin green bonds for
Colombian pesos (COP) 1.49 trillion in the local market using the Dutch auction mechanism.2
The launch of sovereign green bonds yielded positive results in terms of demand, cost, anddiversification of the investor base. The two auctions of green treasury bonds 2031 averaged bidto-cover ratios of 3.0 times, and the greenium3 at issuance doubled from 7 basis points in the firstauction to 15 basis points in the second. The first green bond issuance financed expenditures
The green twin bond concept was introduced by Germany in 2020 when they issued a green bond with the same maturity andcoupon as a conventional bond, thereby creating “twin” bonds (Bundesrepublik Deutschland Finanzagentur GmbH 2020).

1

The Dutch auction is also called the descending price auction. The auctioneer starts with the highest asking price and lowers it until
it reaches a price level where the bids received will cover the entire offer quantity.

2

Greenium refers to the spread between green and non-green bonds with the same financial characteristics issued by the same issuer,
suggesting green bonds have a pricing advantage over conventional bonds.

3

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

associated with a diversified portfolio of 27 investment projects amounting to COP 2 trillion,
including water management (40 percent), clean transportation (27 percent), ecosystem services
and biodiversity protection (16 percent), renewable energy (14 percent), and others (3 percent).
In April 2022, Colombia also became the first country in the Western Hemisphere to adopt a national
green taxonomy—a classification system for economic activities and assets that make substantial
contributions to Colombia’s national environmental objectives and international commitments.
Colombia’s green taxonomy has two main pillars. The first includes seven sectors (energy,
construction, waste management, water management, transportation, information andcommunication technologies, manufacturing) and makes a substantial contribution to theenvironmental objective of climate change mitigation. The second includes three land use sectors(agriculture, forestry, livestock) and has five environmental objectives (climate change mitigation,
climate change adaptation, land management, water management, conservation of ecosystems
and biodiversity).
Colombia’s taxonomy seeks to strike a balance between standardization and specificity. It follows
international environmental sustainability standards such as the European Union Taxonomy, theInternational Capital Market Association’s Green Bond Principles, and the Climate Bonds Initiative
Taxonomy but also incorporates country specifics. For example, it is focused on agriculture, forestry,and land use, because these activities account for nearly 60 percent of Colombia’s greenhouse gas
emissions.
The country is also making progress in sustainable infrastructure. It ranks first in the world in
regulation of infrastructure projects involving private capital, as evidenced in the latest Infrascope
Index published by the Economist Intelligence Unit. Public-private partnerships have created an
innovative, transparent scheme to provide high-quality infrastructure, optimize public resources,
and attract national and foreign private investment.
In 2021, Colombia published guidelines for development of sustainable transport infrastructure
projects for the fifth generation of concessions under public-private partnerships (Republica De
Colombia 2021)—one of the most relevant advances the country has made in incorporating ESG
guidelines into the structuring, risk valuation, and financing of infrastructure projects.
Incorporation of ESG criteria into public-private partnership contracts and risk assessments support
financial innovation and issuance of thematic bonds for project finance. Multilateral developmentbanks, international banks, and local institutional investors have refinanced several road concessions
with credit enhancements in local and foreign currency and through social bonds, given the positive
impact of these projects on communities. A new pipeline of multimodal projects, with an emphasis
on river navigation, is being auctioned to increase competitiveness while reducing greenhouse gas
emissions, preserving biodiversity, and increasing climate resilience.

Cesar Arias
General Director of Public Credit and National Treasury
Ministry of Finance and Public Credit of Colombia
July 2022

PREFACE

The COVID-19 pandemic has highlighted the risks that environmental, social, and governancefactors pose to human health, economic resilience, and long-term sustainability of developing
countries. As governments develop strategies and programs to address environmental and social
vulnerabilities, they must mobilize resources to support implementation of these ambitious plansto end poverty, protect the planet, and ensure a sustainable future for all.
Dedicated financing tools designed to generate positive social and environmental outcomesensure that sustainable investments are prioritized over business as usual. Green bonds are oneof the financing tools that supranational organizations such as the World Bank, corporations, andincreasingly governments, are using to raise capital from capital markets. Bond proceeds are used
to support climate- and environmentally friendly development and appeal to an expanding poolof investors (e.g., pension funds) seeking investment opportunities with positive environmental
and social impacts.
Colombia has paved the way by issuing the first sovereign green bond in local currency in
Latin America and the Caribbean on September 29, 2021. This is in line with Colombia’s national
commitments, policies, and strategies for environmentally sound, low-carbon economic development.
It also corresponds with Colombia’s debt management strategy (2018-2022), which was designed
to broaden and diversify the investor base, reduce foreign exchange risk (by pursuing domestic
currency financing), and develop domestic debt and capital markets. The World Bank is pleased tohave supported and facilitated the transaction by providing technical assistance under the Sustainable
and Competitive Infrastructure Programmatic Approach project funded by the Nationally Determined
Contributions Support Facility. The transaction won the sovereign green bond of the year award in
2022 from Environmental Finance. On behalf of the World Bank Group, I congratulate the governmentof Colombia on this groundbreaking transaction. In addition, alternative financing instruments such as
green bonds allow ministries of finance to broaden the range of debt instruments used to implement
prudent debt management strategies and change the risk profile of their public debt portfolios.
The World Bank originally developed the green bond to help investors support positive actions to
mitigate climate risk in their investment portfolios. We are pleased that the green bond concept
has expanded in recent years to other types of labeled sustainable bonds. Drawing from its own
experience, the World Bank works with emerging markets to develop sustainable financial systems
and facilitate issuance of green and other sustainable bond transactions. Since the first labeledgreen bond was issued in 2008, more than 27 countries have issued sovereign green, social, or
sustainability bonds, including developing countries such as Benin, Chile, Ecuador, Egypt, Fiji,
Guatemala, Nigeria, Indonesia, Malaysia, Mexico, and Thailand. The World Bank’s technical advisory
program has supported several of these transactions, ensuring alignment with best practices while
adapting the approach to each country’s needs, priorities, and institutional arrangements.
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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICAThis case study of green bonds, a joint product of the World Bank and the government of Colombia
describes the context in which the government was motivated to embark on the journey andchronicles the Ministry of Finance and Public Credit’s experience in structuring and issuing thebond. The intention is to capture lessons learned and provide other developing countries witha broad understanding of what they need to consider in designing and issuing such financial
instruments. We hope that other countries will benefit from Colombia’s experience using innovative
financing tools as part of their efforts towards sustainable development.

Jorge Familiar
Vice President & Treasurer
World Bank
July 2022

ABOUT THE WORLD BANK GROUP:MISSION AND STRATEGYThe International Bank for Reconstruction and Development (IBRD), an international global
development institution owned by 189 member countries, was established in 1944 and is theoriginal member of the World Bank Group (WBG). As the largest development bank in the world,
it supports the mission of the WBG by providing loans, guarantees, risk management products,
and advisory services to middle-income and creditworthy low-income countries. The IBRD andthe International Development Association (IDA), which was established in 1960 and lends to
low-income countries, are known collectively as the World Bank and share the same leadershipand staff. The IBRD and the IDA issue bonds in the international capital markets to support thedevelopment mission.
At the heart of the WBG’s strategy are two goals that its Board of Governors endorsed in 2013:●●

End extreme poverty: Reduce to 3 percent the proportion of people living on less than USD
1.90 a day by 2030.
Promote shared prosperity: Foster income growth for the bottom 40 percent of the populationin every developing country.

To deliver on the twin goals and support the Sustainable Development Goals (SDGs), WBG
management and shareholders have agreed on three main priorities for our work with developing
countries, including those affected by fragility, conflict, and violence: accelerate sustainable andinclusive growth, invest in human capital, and strengthen resilience.
This overarching strategic framework rests on four pillars: serving all clients in low- and middleincome countries; creating markets, mobilizing finance for development, and expanding the useof private sector solutions; leading on global issues; and improving how we do business to beagile, efficient, and closer to clients. The WBG is committed to bringing together the international
community in the urgent task of achieving the goals by 2030. They can be reached only throughcollaboration of all partners, including countries, other institutions, civil society, and the private
sector.
The WBG consists of five organizations: the IBRD, IDA, International Finance Corporation, Multilateral
Investment Guarantee Agency, and International Centre for Settlement of Investment Disputes.

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ABOUT THE WORLDBANK TREASURY
The World Bank Treasury ensures the long-term financial sustainability of the World Bank (IBRD and
IDA) and manages the Bank’s finances to enable all operations and lending by:●●●

Proactively managing our balance sheet to safeguard our triple-A ratings and our strong financial position
Strategically and cost-effectively raising funds from global capital markets and providing financing to our borrowing clientsManaging and administering assigned internal and external portfolios effectively and deliveringtargeted excess returns within approved risk limits

The Treasury acts as a trusted adviser to member countries seeking to maximize finance fordevelopment and support financial stability and resilience by:●●●●

Applying international best practices to managing client assets and reserves
Developing innovative sustainable financing solutions for climate, pandemic, refugee crisis,
and infrastructure development, among other priorities
Leading and shaping the debate on sustainable finance
Offering mechanisms to reduce risks and promote private sector investment

WORLD BANK TREASURY SUSTAINABLE FINANCE AND ENVIRONMENTAL,
SOCIAL, AND GOVERNANCE ADVISORY SERVICE PROGRAM
The Treasury’s Financial Products and Client Solutions team works with policy makers, ministries
of finance, regulators, central banks, supervisors, and World Bank project teams to develop
sustainable financial systems by:
●
●
●
●
●
●
●


Advising on approaches public authorities can use to promote green finance and manage
climate-related risks
Promoting financing to support green, sustainable investments
Helping borrowers consider sustainable financial instruments as part of a menu of options
available to low-and middle-income borrowers
Facilitating issuance of market-based sustainable financing (green, blue, social, and sustainable bonds)
Building the capacity of borrowers to engage with investors who incorporate environmental,social, and governance considerations into investment decisions
Advising the global practices and project teams
Publishing knowledge products and writing and peer reviewing papers
xi

1

OVERVIEW OF ENVIRONMENTAL,
SOCIAL, AND GOVERNANCE
INVESTMENT AND SUSTAINABLE
BOND LANDSCAPE
The terms “sustainable finance” and “environmental, social, and governance (ESG) finance” aresynonymous and refer to debt or equity financial services or investment decisions that consider
ESG criteria. According to Bloomberg Intelligence, global ESG assets are expected to exceed USD
50 trillion by 2025. Projected growth by 2025 represents one-third of the USD 140.5 trillion inprojected total assets under management globally.
Sustainable bonds allow issuers to access investors using ESG strategies, particularly thoseinterested in generating positive, measurable social and environmental impact alongside financial
return. Governments can attract these investors mainly by issuing two types of sustainable bonds:
use-of-proceeds and outcome-linked bonds (the latter also known as sustainability-linked bonds).
Use-of-proceeds bonds include green,4 climate,5 climate-aligned,6 blue,7 social,8 and sustainability
bonds,9 which attract investors by committing funds to programs, projects, or assets that are deemed
to be environmentally or socially beneficial and are labeled as such. Labeled sustainable bonds areencouraged to follow International Capital Market Association (ICMA) standards and guidelines(Green Bond Principles (ICMA 2021a), Social Bond Principles (ICMA 2021b), Sustainability Bond
Guidelines (ICMA 2021c)) or Climate Bond Standards (CBI 2022).
Sustainability-linked bond proceeds can be used for general purposes, but the issuer must commit
to making progress toward pre-identified sustainability-related targets (e.g., less carbon intensity,
greater use of renewables, reaching underserved populations) and pays a penalty (e.g., higher
interest or coupon rate or other pre-negotiated term) if it fails. Issuers are encouraged to alignthese bonds with the Sustainability-Linked Bond Principles (ICMA 2021d).
Sustainable bonds appeal to issuers and investors alike because the recourse is to the balance
sheet of the issuer, and therefore there is no difference between these bonds and traditional bonds

4
5

Proceeds exclusively finance or refinance new and existing environmental or climate projects.
Proceeds exclusively finance or refinance climate change projects.

Proceeds fill the gap for financing underlying climate-aligned activities that may not be as visible and transparent as labeled bonds
but address climate and promote a low-carbon economy. https://www.dbs.com.sg/corporate/sustainability/climate-aligned-bonds.

6

Proceeds exclusively finance or refinance marine and ocean-based projects with environmental, economic, and climate benefits.
https://www.worldbank.org/en/news/feature/2018/10/29/sovereign-blue-bond-issuance-frequently-asked-questions.
7
8
9

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Proceeds finance or refinance new and existing projects with positive social outcomes.
Proceeds exclusively finance or refinance a combination of green and social projects.

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICAin terms of credit risk. For issuers, the advantage of issuing sustainable bonds lies in the potential
to access a wider investor base. Conventional investors also buy these bonds.
The combined labeled issuance of green, social, sustainability, and sustainability-linked bonds
totaled slightly more than USD 1 trillion at the end of 2021, which is nearly 100 percent year-on-year
growth from 2020 and 11 percent of global bond issuance (S&P Global Ratings 2022). Supranationalorganizations (e.g., World Bank, International Finance Corporation, Asian Development Bank,
African Development Bank, KfW), banks and other financial institutions, corporations, cities,municipalities, and national governments issued these bonds.
Green bonds are still the dominant use-of-proceeds category in developed and emerging markets.
Despite domination by corporate and financial institution issuance, national governments haveincreased their share of global green bond issuance in the last 2 to 3 years. As of March 2022, 27
countries had issued sovereign green, social, and sustainability bonds. Among these are several
developing countries (Benin, Chile, Ecuador, Egypt, Fiji, Guatemala, Nigeria, Indonesia, Malaysia,
Mexico, Thailand). In 2021, Colombia became the first Latin American country to issue a green
sovereign bond in local currency.

2

COLOMBIA COUNTRYCONTEXTThe Andes Mountains traverse Colombia, which has lowland plains in the east and is in thenorthwest corner of South America. Colombia has a 3,208-kilometer coastline along the Pacific
Ocean to the west and the Caribbean Sea to the north. The northern edges of the Amazon Basin’s
tropical rainforests are in the southeast. The country is the 25th largest nation in the world, covering
1,138,910 square kilometers of land, and had an estimated 50.8 million people in 2020, withprojections suggesting the population could reach nearly 56 million by 2050.10
Colombia has a diverse range of ecosystems, such as páramos, mangroves, wetlands, coral reefs,
glaciers, oceans, and tropical forests, as well as significant biodiversity and water resources.
Colombia is also highly vulnerable to the impacts of climate variability and change, experiencing
damaging droughts and floods. Heavy rains in 2010 and 2011 caused more than USD 6 billion indamage to crops and infrastructure and displaced many. The coffee industry, the largest sourceof rural employment in the country (BizLatinHub 2021; IADB 2020), is highly vulnerable to risingtemperatures and hydrologic events. Availability of water depends heavily on glacier melt; withrising temperatures, it is projected that glaciers will continue to recede.
Colombia’s nationally determined contribution (NDC) to the United Nations Framework Convention
on Climate Change is considered among the most ambitious in Latin America and the Caribbean.
The updated submission in 2020 targets reducing greenhouse gas emissions by 51 percent fromthe baseline scenario by 2030.11
The World Bank has been a long-time partner in Colombia’s development, supporting thegovernment’s development goals by deploying financial and advisory services in the following
strategic areas:●●●

Balanced territorial development
Greater service delivery to enhance social inclusion and mobility
Fiscal sustainability and productivity

10 Data from the Climate Change Knowledge Portal (database). World Bank Group, Washington, DC (accessed March 21, 2022),

https://climateknowledgeportal.worldbank.org/country/colombia

11 Data from the Climate Change Knowledge Portal. World Bank Group, Washington, DC (accessed March 21, 2022), https://climateknowledgeportal.worldbank.org/sites/default/files/2021-07/15520-WB_Colombia%20Country%20Profile-WEB%20%283%29.
pdf

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

2.1 Colombia’s Macroeconomic Context
In the last decade, Colombia has consolidated its position among the top economic performers
in Latin America with prudent macroeconomic and fiscal management anchored on an inflationtargeting regime, flexible exchange rate, and rule-based fiscal framework, which enabled theeconomy to grow uninterrupted from 2000 to 2019 and provided policy space to respond to the
COVID-19 crisis (WBG 2016).

2.2 Recent Economic Development
The COVID-19 pandemic was a shock to the world economy. In Colombia, the authorities promptly
enacted a range of monetary and fiscal measures to support firms and households. The Central
Bank progressively cut the monetary policy rate from 4.25 percent in March 2020 to a historic lowof 1.75 percent in September 2020, lowered reserve requirement ratios, purchased public andprivate securities, and activated U.S. dollar swap lines.
To ensure adequate fiscal support, the suspension exception clause of the fiscal rule was activated,
and the fiscal rule was suspended for 2020 and 2021,12 allowing the government to expand social
protection (through existing and new programs), provide tax relief to companies, and provide
support so that struggling firms could maintain employment. These measures helped containthe contraction of GDP and private consumption but not of gross fixed capital formation, which
declined 23.3 percent as private and public investment fell. Fiscal emergency measures and thefall in nominal GDP pushed the central government deficit to a record 7.8 percent of GDP in 2020
and the gross (unconsolidated) general government debt-to-GDP ratio to 67.2 percent at the endof 2020.13
The economic rebound has been stronger than anticipated, and GDP grew 10.6 percent in 2021,
reaching its 2019 level by the end of the year on the back of the removal of mobility restrictions andthe consequent reactivation of the economy (which were possible thanks to progress in vaccinationand the reduction in the number of COVID-19 cases) and despite protests and strikes in April
through June in opposition to an ambitious fiscal reform package aimed at increasing equity andeconomic growth within a sustainable fiscal framework. Activity in manufacturing was the main
driver of growth (surpassing the pre-COVID-19 trend), whereas activity in mining and construction
remained below 2019 levels. Consumption was the main driver of GDP growth in 2021, whereas
investment and exports contributed only marginally and remained below 2019 levels.
After hovering around 0 for most of 2020, inflation quickly increased in early 2021, breached the Central
Bank’s target (3.0 percent) before the end of the year, and climbed to 9.2 percent in April 2022, driven
primarily by food prices. In this context, the Central Bank began its monetary normalization process

12 Colombia’s fiscal rule mandated a reduction of 0.8 percent of gross domestic product (GDP) in the central government fiscal deficit

between 2019 and 2022, which would have brought the structural deficit of the central government to 1 percent of GDP in 2022. In
May, the flexibility built into the fiscal rule allowed the 2020 deficit ceiling to be resettled to 6.1 percent of GDP (up from 2.2 percent
established in the 2019 medium-term fiscal framework). On June 15, 2020, the Consultative Committee on the Fiscal Rule endorsed thegovernment’s request to suspend the fiscal rule during 2020 and 2021 because of the need for greater fiscal flexibility because of theeconomic crisis that the COVID-19 pandemic and its related economic impact caused. The suspension is contemplated in Article 11 of
the Fiscal Rule Law 1473, which provides for greater flexibility or deferment of the fiscal rule under extenuating economic circumstances.
The Fiscal Rule Advisory Committee unanimously backed suspension of the fiscal rule for 2020 and 2021. The government committed
to the parameters set out in the fiscal rule in 2022.

13 The consolidated debt of the general government was 58.4 percent of GDP.

COLOMBIA COUNTRY CONTEXT 

in September 2021 and raised the policy rate to 4.0 percent in January, 5.0 percent in March, and 6.0
percent in May. The current account deficit, which declined to 3.4 percent of GDP in 2020, reached
5.7 percent of GDP in 2021 as imports and distribution of dividends resumed while export receipts,
especially from tourism, remained below pre-pandemic levels. The central government’s deficit
declined to 7.1 percent of GDP as recovery buoyed tax revenues, offsetting the increase in spending.
The government’s financing needs for 2021 were 9.4 percent of GDP, including the deficit (7.1
percent of GDP), amortization (2.0 percent of GDP), and payment for judicial rulings (0.3 percent ofGDP). The execution of the 2021 funding program allowed the government to cover all financing
needs for the year and pre-finance part of the 2022 budget.
Motivated by the failed attempt in April to pass a package of fiscal reforms and reduced confidence
in government capacity to consolidate public finances, on May 19, 2021, S&P downgraded
Colombia’s long-term foreign currency rating from BBB- to BB+ and revised its outlook fromnegative to stable, and on July 1, 2021, Fitch did the same. On July 20, 2021, the government
submitted a new fiscal bill to Congress called the Social Investment Law that included a set ofmeasures intended to protect the most vulnerable populations, reactivate economic activity, andstabilize public finances. On September 7, 2021, Congress approved the bill, and on September 14,
2021, President Duque enacted the Ley de Inversión Social as Law No. 2155 of 2021. On October
6, 2021, Moody’s affirmed Colombia’s long-term foreign currency rating at Baa2 and changed
the outlook to stable from negative; on December 9, 2021, Fitch affirmed Colombia’s long-term
foreign currency rating at BB+ with a stable outlook, and S&P did so on May 5, 2022.

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

2.3 Macroeconomic Outlook
As of April 2022, it was projected that real GDP would grow 4.4 percent in 2022, supported byconsumption on the demand side and commerce and manufacturing on the supply side (WorldBank 2022).14 Over the medium term, it is projected that growth will slow gradually to 3.3 percent
in 2025 as GDP moves closer to (but remains below) its pre-COVID-19 trend. It is projected that thecurrent account deficit will decrease to 4.5 percent of GDP in 2022 (mostly supported by higher
oil prices) and then stabilize over the medium term (around 4.4–4.6 percent of GDP), as exports ofservices resume, import growth slows, and the flow of remittances normalizes to pre-COVID levels.
It is projected that net foreign direct investment inflows will finance most of the current accountdeficit over the medium term.
With inflation projected to remain above the target for 2022, the output gap projected to narrow,and spare capacity in the economy to be used, the space to maintain an accommodative monetary
policy will shrink. It is projected that interest rates will keep increasing in 2022, with the amount andtiming depending on the persistence of inflation and the speed at which the world’s major central
banks normalize their rates. As of February 2022, it was projected that the central government
deficit would decline to 6.2 percent of GDP in 2022 and continue to decline as COVID-19-related
health spending and emergency income support come to an end and the effects of the tax reforms
approved in September 2021 kick in.15 Over the medium term, it is expected that increasing tax
collection and tight control of spending will reduce the deficit.

14 This projection will be subject to revision in June 2022.

15 According to the 2022 financial plan, the government expects the central deficit to decrease from 7.1 percent of GDP in 2021 to 6.2

percent in 2022.

7

COLOMBIA COUNTRY CONTEXT 

2.4 Colombia’s Sovereign
Debt Portfolio
Colombia’s central government debt reached USD 188 billion16
in April 2022—equivalent to 56.6 percent of GDP (projected for2022) (Table 1).
An update from the Ministry of Finance and Public Credit(MHCP) on February 4, 2022, indicated that Colombia will
issue COP 75.9 trillion (USD 19.4 billion) in public debt in 2022,
down from an earlier projection of COP 102.0 trillion (USD 26.1
billion). Nearly 71 percent of the total issuance is expected tocome from local treasury bonds (Minhacienda. n.d.).
In the past year, Colombia has demonstrated stronger-thanexpected economic recovery, supported by the government’s
prudent macroeconomic management and promotion ofpolicies that will help stabilize debt.

TABLE 1.   Colombia’s Government Debt Statistics asof April 2022
Total debt outstanding andcurrency breakdown
Total public debt (USD billion)

188.0

Debt to gross domestic productratio (2022 projected year-end)

56.6%

U.S. dollar

34.2% of total

Euro

3.4% of total

Unidad de Valor Real (COP)a

18.6% of total

COP

43.8% of total

Average cost and refinancing risk

Domestic

Foreign

Average coupon COP

9.2%

—

Average coupon USD

—

4.1%

Average time to maturity (years)

8.6

11.5

Duration (years)

5.8

6.2

Source: Ministry of Finance and Public Credit.
a. A notional currency that reflects the inflation-adjusted Colombian peso (COP).

16 An exchange rate of 1 USD = COP 3,966.27 has been used throughout this report.

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

2.5 Colombia’s Debt Management Strategy 2018–22
According to guidelines from the IMF (2014), public debt management is the process of establishingand executing a strategy for managing the government’s debt to raise the funding needed at thelowest possible cost over the medium to long run consistent with a prudent degree of risk.
International sound practices suggest that debt managers should be guided by a formal mediumterm debt management strategy that lays out the government’s funding objectives for the medium
term (in general 3 to 5 years), is typically expressed through a set of risk indicators—or benchmarks—
that define the government’s cost-risk tradeoffs, and is linked to the degree of domestic market
development and the overall macroeconomic context of the country.
In 2013, Colombia issued its first formal debt management strategy for 2013 to 2017 (MHCP 2013).
At that point, Colombia was aiming to increase the share of domestic currency debt in its portfolio
to 75 percent, increase the average life of domestic and external debt, and maintain a share of 95
percent of fixed-rate debt.
During implementation of the strategy, Colombia was able to increase the average life of its
domestic and external debts, although shares of domestic and variable debt did not move in the
expected direction, mainly because of depreciation of the Colombian peso, which increased therelative share of foreign currency debt and affected the variable-rate debt indicators (becauseloans from multilateral organizations are primarily contracted at variable rates).
In that context, in 2018, Colombia issued a new debt management
strategy for 2018 to 2022 designed to optimize managementof its financial resources considering a sophisticated capital
market that demands clarity in the objectives and financing
tools of the central government (General Directorate of Public
Credit and National Treasury and Ministry of Finance and Public
Credit 2018).
The current strategy also brought some innovations. First, in
terms of the underpinning analytical framework, the strategy’s
scope was expanded to assess different interest rates andtenors in addition to different currencies. The currency mix was
also expanded to include issuances in euros and broaden theinvestor base. The cost-risk analysis and projection of macro
variables was also further integrated with the developmentof the medium-term fiscal framework. Finally, the governanceprocess around strategy development and implementation was
also strengthened.
Colombia has been aiming at reducing (i) the refinancing risk—byincreasing the average time to maturity of the debt portfolio andsmoothing the maturity profile, (ii) the foreign exchange risk—by
pursuing a higher share of domestic currency financing, and (iii)
the interest rate risk—by keeping a high share of the portfolio in
fixed rates (see Figure 1 below).

9

COLOMBIA COUNTRY CONTEXT FIGURE 1.   Evolution of Cost and Risk Indicators
COMPOSITION ACCORDING TO CURRENCY
100%
80%
60%

Domestic currency

40%

Foreign currency

20%
0%Jan-12

Jan-13Jan-14Jan-15Jan-16

Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22COMPOSITION ACCORDING TO TYPE OF INTEREST RATE
100%
96%
Fixed rate

92%
88%

Variable rate

84%
80%
Jan-12

Jan-13Jan-14Jan-15Jan-16

Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22AVERAGE TIME TO MATURITY
14
12

Domestic

10

External

8

Total debt

6
4
Jan-12

Jan-13Jan-14Jan-15Jan-16

Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22AVERAGE COUPON
10%

Domestic

8%

External

6%

Total debt

4%2%
Jan-12

Jan-13Jan-14Jan-15

Source: Ministry of Finance and Public Credit.

Jan-16

Jan-17Jan-18Jan-19Jan-20Jan-21

Jan-22

10

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICAFIGURE 2.   Holders of Domestic Bonds
JANUARY 2012
Others16%

JANUARY 2022
Nonresidents
3%

Others4%
Pensionfunds
27%

Publicsector26%

Commercial
banks
21%

Insurancecompanies
6%

Nonresidents
24%

Publicsector22%

Commercial
banks
15%
Insurancecompanies
6%

Pensionfunds
28%

Source: Ministry of Finance and Public Credit.

Another goal outlined in both strategy documents wasto broaden and diversify the investor base. Nonresident
holdings of domestic debt increased from 3 percent
in 2012 to 24 percent in 2022 (Figure 2). The investorsclassified as nonresidents are a diverse group composedof real money investors, hedge funds, and sovereign
wealth funds. Diversification of the investor base was also
reflected in the reduction of the share of domestic debt
that commercial banks held (from 21 percent in 2012 to
15 percent in 2022).
In international markets, Colombia has also looked forinvestor base diversification by issuing in the euro market
and obtaining multilateral and bilateral debt in euros in
addition to the more frequent U.S. dollar issuances.
To diversify its investor base, Colombia took several
measures to develop the domestic debt and capital
markets, including review of the Primary Dealer Program
Allocation (Programa de Creadores de Mercado), revampof the funding plan to foster creation of benchmark
securities, introduction of liability management operations,and development of a securities-lending facility.

COLOMBIA COUNTRY CONTEXT 

2.6 Colombia’s Environmental Context
Colombia faces several environmental challenges, including climate change. Some of these are
discussed below.
Transport. The transport sector accounts for 11 percent of Colombia’s carbon dioxide(CO2) emissions (IDEAM, Fundación Natura, PNUD, MADS, DNP, CANCILLERÍA 2021)
and is the largest source of air pollution in urban areas. The sector was also responsiblefor 41 percent of the country’s energy-related CO2 emissions in 2019 (Climate Transparency 2020).
CO2 emissions from transport could increase from 30 million tons in 2010 to 70 million tons in 2040
(Ministry of Transport 2014). The health costs associated with urban air pollution were equivalent
to an estimated 1.9 percent of GDP in 2015 (DNP 2015).
Air pollution. Ambient air pollution is a significant contributor to environmental
degradation and health damage in Colombia. Use of diesel in cargo transport is asignificant source of emissions, including toxic substances, with adverse impacts onhuman health. Approximately 5,000 premature deaths and 65 million disability-adjusted life years
are related to urban air pollution each year (Golub et al. 2014).
Forest. Increasing pressure from extensive cattle ranching, expansion of the agricultural
frontier, illegal logging and mining, land grabbing, unplanned road infrastructure, andother underlying factors led to the loss of more than 6 million hectares of natural forestsfrom 1990 to 2016—equivalent to 8 percent of national forest cover (MADS and IDEAM 2018).
Deforestation accounted for 33 percent of Colombia’s emissions in 2012 (IDEAM, Fundación
Natura, PNUD, MADS, DNP, CANCILLERÍA 2021).
Biodiversity. Colombia is one of 12 countries catalogued worldwide as megadiverse
and is home to nearly 10 percent of the world’s known species, although nearly half ofthe ecosystem types, terrestrial and marine, are at high risk of loss (27 percent critical, 17
percent endangered), presenting conditions that put their permanence and provision of services
to society at risk (Environmental Information System of Colombia 2022).

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

Energy. Although more than 60 percent of Colombia’s electricity comes fromhydropower and 14 percent from nonconventional renewable energy sources, nearly
26 percent of primary energy consumption originates in fossil fuels. A critical constraint
on development of nonconventional renewable energy is lack of funding. Furthermore, changes
in rainfall pattern and temperature are likely to affect river basins where hydropower plants arelocated, posing a systemic risk to the power generation system.
Water and sanitation. Most municipalities discharge untreated wastewater directly into
water bodies within urban limits, with only 42.6 percent of urban wastewater treated(DNP 2019), and more than half of wastewater treatment systems do not operateproperly or regularly. Forty percent of the principal water basins in the country are vulnerable todeterioration—with areas of major economic activity being most affected—because they receive
highly polluted wastewater from point and diffuse sources. The growing effects of climate change,
notably low and variable flows, will further degrade water resources. Moreover, inadequate water,
sanitation, and hygiene impose a high economic burden and are an important cause of death anddisease in Colombia.
Solid waste. Although Colombia has made important strides in collection and final
disposal of solid waste, and 82.8 percent of municipalities treat solid waste properly,
there is an important rural-urban gap in waste collection and availability of adequate final
disposal sites, posing a risk to the environment and human health. Only 53 of 1,122 municipalities
incorporate some form of formal reuse into their solid waste management activities, which does
not significantly affect the final disposition.
Chemical substances. In 2015, more than 33,000 cases of poisoning occurred because
of inadequate handling and management of chemical substances (DANE 2015). To
address rising cases of chemical hazards, the Colombian government published Decree
1630/2021 on November 30, 2021 that will establish a national inventory for industrial chemicals(MADS 2021). The decree applies to industrial chemicals identified as hazardous under the Globally
Harmonized System of classification and labelling of chemicals and is seen as an important step
towards building a regulatory framework by the end of 2025 for sound management of chemicals.

COLOMBIA COUNTRY CONTEXT 

The government has committed to balancing economic development and environmental
conservation through the 2018–2022 National Development Plan (NDP): Pact for Colombia, Pact
for Equity, specifically in the Sustainability Pact, which has four lines of action (MHCP 2021) focusedon the circular economy and climate change mitigation, conversion of biodiversity and natural
capital into national strategic assets, reduction of natural disaster risks and facilitation of climatechange adaptation, and strengthening of environmental institutions and research. These lines ofaction build on the commitments of the United Nations 2030 Agenda, the Paris Agreement, andOrganization for Economic Cooperation and Development environmental standards.
Colombia has developed a series of the policy documents issued by the Economic and Social
Policy Council (CONPES) to reduce the impact on natural resources that all cabinet members
have approved. The government also adopted a national program for payment for environmental
services and recently approved an energy transition law. In the latest update to the NDC in 2020,
the government pledged to limit emissions to 169.44 million tons of CO2 equivalent in 2030 (a 51
percent reduction in emissions from the 2030 emissions forecast under the reference scenario). As
part of its efforts to mitigate and adapt to climate change, through Decree No. 298 of 2016, Colombia
has established the National Climate Change System and formulated the National Climate Change
Policy and the Climate Action Law No. 2169 of 2021, which establishes guidelines, actions, andstrategies to foster sustainable, low-carbon development. In addition, under the Climate Change
Law No. 1931 of 2018, the ministries and departmental authorities that participate in the National
Climate Change System must formulate and implement comprehensive sectoral climate change
management plans that incorporate greenhouse gas mitigation and climate change adaptation
measures into the policies and regulations of their sectors. The law also requires establishmentof an emissions trading system. The 2016 tax reform has already introduced a modest carbon tax.
In line with these national commitments, policies, and strategies, the public finance sector has
been considering climate and environmental challenges in its economic, fiscal and financial
policies. Such consideration focuses on helping the country meet environmental aspects of theSDGs by establishing measures that help mobilize resources through green finance, including
development of carbon pricing instruments, strategies for the financial sector, a disaster risk
finance strategy, macroeconomic modeling involving these concepts, and development ofgreen bonds. Government-issued green bonds could attract much-needed capital for economic
development aligned with the government’s national and international commitments to achieving
an environmentally sound, low-carbon future.

13

3

SOVEREIGN GREEN
BONDS
3.1 Rationale and Motivation
As discussed in Section 2.4, Colombia has made policy commitments to address environmental
risks and challenges, including policies to protect natural resources.
Implementing these national strategies and policies designed to address environmental challenges
will require unprecedented levels of investment in sustainable, low-carbon technologies, services,
and infrastructure. Mobilizing resources will be essential to enable the required capital flows, but
successful allocation of resources to investments considered strategic for the country requires
coordination of fiscal and financial resources, incentives, and connecting public and private sector
actors.
Colombia has advanced development of a policy framework that fosters implementation of
innovative sustainable finance initiatives and instruments with high environmental and social impact
and has been designing green finance initiatives and promoting dialogue between the public andprivate sectors, including the National Climate Change System Financial Management Committee,
the National Climate Finance Strategy, the Green Protocol, the Task Force on Responsible Investment,
and the 2018–22 NDP. In particular, the MHCP, aware of the difficulties of achieving environmentallysound, low-carbon economic development, has channeled its efforts into ensuring that investment
strategies support the country’s climate and environmental commitments.
The MHCP has joined the Coalition of Finance Ministers for Climate Action, which seeks global
action on climate change, reaffirmation of commitments, and acceleration of actions to implement
the Paris Agreement. After the coalition was launched, it established the Helsinki Principles—six
principles that promote national climate action, especially through fiscal policy, use of publicfinance, and promotion of private financing.
These principles are reflected in the Comprehensive Sectorial Climate Change Management Plansof the MHCP, which includes actions related to public finance, macroeconomic and fiscal policies,
green budgets, transparency of financial risks caused by climate change, and development of
economic and financial instruments, which together enable implementation of climate change
goals and the SDGs.
In this context, one of MHCP’s missions is to implement a roadmap for development of thegreen bond market as a public funding tool to meet the country’s environmental, climate, andsustainability targets.

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

The national government uses three main funding sources: issuance of public debt securities
in the domestic capital market (long- and short-term treasury bonds), issuance of public debt
securities in international capital markets through the placement of global bonds, and loans frommultilateral and bilateral development banks and other funding sources. The funding strategy isbased on broad diversification of sources, lenders, strategic partnerships, and local and foreign
investors.
In view of this, the government of Colombia included use of green bonds as a public policy tool
to channel resources to green initiatives that promote sustainable economic growth, diversify its
investor base, encourage participation of other Colombian issuers in the green bond market, andattract socially and environmentally responsible investors to the country. Issuance of sovereign
green bonds was expected to send a clear signal to the market about:●●●

Colombia’s commitment to fostering sustainable finance mechanisms that enable development ofa low-carbon, climate-resilient economy oriented to conservation of ecosystems and biodiversity
Development of a green bond market with a diversified investor base and potentially morecompetitive funding costs for public and private issuers
Alignment of financial, social, and environmental incentives for key actors, such as the government, the private sector, investors, multilateral banks, and international cooperation agencies

SOVEREIGN GREEN BONDS

3.2 Colombia’s Sovereign Green Bond Framework
Under Article 4 of Law No. 2073 of 2020, the MHCP is responsible for establishing the Sovereign
Bond Framework for Sustainable Development Financing. Therefore, through an administrativeact, the MHCP designed and adopted the framework for the issuance of sovereign thematic bonds
such as green, social, sustainable, blue, and other thematic bonds deemed suitable for and related
to expenditures included in the national budget to foster sustainable development.
The Green Bond Framework establishes pre- and post-issuance procedures to be used to issue
Colombia’s green bonds in line with the ICMA Green Bond Principles. It:●●●

Defines the roles and responsibilities of the MHCP, the National Planning Department (DNP),
relevant line ministries, and other entities related to the transaction before and after the issuance of green bonds, in line with their respective functions
Facilitates identification of eligible green expenditures
Outlines post-issuance allocation and impact-reporting commitments

The framework applies to all sovereign green bonds, whether in local or international capital
markets, which must also comply with Colombia’s public debt regime as it relates to issuance ofgovernment bonds. The MHCP, through the General Directorate of Public Credit and National
Treasury, is responsible for preparing and updating the framework as necessary, supported by the
DNP; the Ministry of Environment and Sustainable Development; and the Institute of Hydrology,
Meteorology, and Environmental Studies of Colombia (IDEAM).
As with all general recourse bonds, principal and interest payments for bonds issued under thisframework will be made from the debt service appropriations in the national budget and executedby the General Directorate of Public Credit and National Treasury and do not depend on theperformance of eligible green expenditures. Investors in the bonds issued under this framework do
not assume any risk related to specific projects indicated in the green portfolio, and green bonds
issued under the framework rank equally with each other and with other domestic debt securities
or external bonds that Colombia issues. Green bonds are identical to conventional bonds but withan additional green commitment.
Colombia’s framework is aligned with the ICMA (2021a) Green Bond Principles and follows its four
core components:●●●

Use of proceeds: Use of bond proceeds for eligible green projects should be appropriately
described in the legal documentation of the security.
Process for project evaluation and selection (governance): The issuer of the green bond should
clearly communicate to investors the environmental sustainability objectives of eligible green
projects, the process by which the issuer determines how the projects fit within the eligible
green project categories, and complementary information on processes by which the issuer
identifies and manages perceived social and environmental risks associated with the relevant
projects. Issuers are encouraged to have a process to identify mitigants to any known material
risks of social or environmental harm arising from the project being funded.
Management of proceeds: The proceeds of a green bond must be managed carefully to ensuretransparency regarding how the proceeds were applied to the selected project. An external
review is recommended to verify the issuer’s internal tracking methods.

17

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA●

Reporting: Issuers should make information on use of proceeds readily available and keep it
up to date so that it can be renewed annually until full allocation and on a timely basis in caseof material developments.

An independent external reviewer (Vigeo Eiris) reviewed the framework in accordance with the
ICMA Green Bond Principles (2021 edition).

3.3 Use of Proceeds, Governance, andManagement of Proceeds
USE OF PROCEEDS
Colombia will use green bond proceeds to finance, in part or in full, eight eligible green
expenditure categories in the fiscal year preceding issuance, the year of issuance, and the fiscal
year after issuance. Selected categories for investment include clean transportation, sustainableagriculture, ecosystem services and biodiversity, waste and the circular economy, managementof natural disaster risks associated with climate change, sustainable water management and use
and sanitation, sustainable buildings, nonconventional energy sources, energy efficiency, andconnectivity.

19

SOVEREIGN GREEN BONDS

Based on the categories selected, investment potential for ESG-focused investors is more diversified
than for other sovereign issuers (Table 2). The external review confirmed that eligible expenditures
are consistent with international best practice and aligned with the Green Bond Principles.
The proposed portfolio of projects includes eligible green expenditures totaling COP 2 trillion(USD 511.4 million) distributed across 27 projects in six categories.

TABLE 2.   Distribution of Funds Across 27 Projects in Six Categories
Project

EntityExamples of indicators

Sustainable water management, use, and sanitation

Allocation amount(COP billion)
805.98Institutional strengtheningof national policy for integral
management of water
resource

Ministry ofEnvironment
and Sustainable
Development

Number of documents thatprovide technical guidelines forclimate change management

6.95

Financial support to facilitate
access to drinking water andwastewater management
services

Ministry of Housing

Number of projects to promote
efficient water use and savings

695.87

Water sanitation in prioritizedbasins in the national territory

Ministry of Housing

Cubic meters of water treated

55.15

Strengthening of nationalhydrological, meteorological,
and environmental
knowledge management

Institute ofHydrology,
Meteorology, andEnvironmental
Studies of Colombia

Number of regional institutional
programs to monitor water
quality and quantity

48.01

Number of wastewater
management projects

Clean, sustainable transport

543.96

Construction of section 1 offirst line of Bogotá metro

Ministry of Transport

Construction of phases II and
III of extension of Transmilenio
Soacha system

Ministry of Transport

Implementation of integrated
mass transportation system in
Cartagena

Ministry of Transport

Implementation of integrated
mass transportation system
in Cali

Ministry of Transport

Implementation of integrated
mass transportation system
Envigado, Medellín, Itagüí

Ministry of Transport

Reduction of greenhousegas emissions from baseline
scenario
Number of air quality
surveillance and monitoring
networks306.77
54.26

Kilometers of urban roads built
or improved for operation of
public transportation services

18.93

Number of stations, terminals,
or additional construction
projects built or improvedfor operation of public
transportation systems

85.49

78.51

(continues on next page)20

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICATABLE 2.   Distribution of Funds Across 27 Projects in Six Categories (continued)
Project

EntityExamples of indicators

Ecosystem services and biodiversity

Allocation amount(COP billion)
316.08Institutional strengthening of
national natural parks

National Natural
Parks of Colombia

Hectares reforested

36.48

Scientific investigation ofmarine and coastal areas

Ministry ofEnvironment
and Sustainable
Development

Hectares of forests with forest
management plan

17.72

Scientific research on
biodiversity and ecosystemservices

Ministry ofEnvironment
and Sustainable
Development

Hectares declared as protectedareas

Consolidation of Colombian
environmental information
systemMinistry ofEnvironment
and Sustainable
Development

Number of buildings foradministration, surveillance, andcontrol of protected areas

Strengthening of institutional
management of National
Environmental Licensing
Authority

National
Environmental
Licensing Authority

1.59

Research, conservation, anduse of biological diversity ofColombian Amazon

Ministry ofEnvironment
and Sustainable
Development

18.07

Strengthening of evaluationand monitoring processesof environmental licenses,
permits, and procedures

National
Environmental
Licensing Authority

27.97

Administration of National
Natural Parks of Colombia
and coordination of National
System of Protected Areas

National Natural
Parks of Colombia

115.56Conservation of biodiversity
and ecosystem services atnational level

Ministry ofEnvironment
and Sustainable
Development

42.82

Strengthening climate change
management in national,
sectoral, and territorialplanning

Ministry ofEnvironment
and Sustainable
Development

6.90

Research on environmental,socio-productive, and culturalenvironment of Choco,
Nariño, Valle del Cauca,
Risaralda, Córdoba

Ministry ofEnvironment
and Sustainable
Development

13.98

Hectares of ecosystems
conserved or undergoing
restoration

24.61

Number of research andplanning documents
10.38(continues on next page)21

SOVEREIGN GREEN BONDSTABLE 2.   Distribution of Funds Across 27 Projects in Six Categories (continued)
Project

EntityExamples of indicators

Allocation amount(COP billion)

Nonconventional energy sources, energy efficiency, and connectivity

282.31

Design and structuring oftechnological solutions forgeneration of electricity in
non-interconnected zones

Institute for Planningand Promotion ofEnergy Solutions for
Non-Interconnected
Zones

Number of photovoltaic power
generation units installed,
maintained, or upgraded

25.31

Development andimplementation of sustainableenergy projects in noninterconnected zones

Institute for Planningand Promotion ofEnergy Solutions for
Non-Interconnected
Zones

Reduced or avoided carbon
dioxide emissions

Supply of electric power
service in non-interconnectedzones

Ministry of Energy
and Mining

Number of generation plants
expanded, built, or upgraded

Energy consumption
Number of technical assistanceservices for structuring energy
projects

219.61

Number of installed non-hydrogeneration units or sources

Waste and circular economy
Expansion and improvementof comprehensive solid waste
management

37.39

38.50
Ministry of Housing

Tons of waste used, reused, or
recycled

38.50

Number of companies that
contributed to circular economy
and sustainability-related topics

Sustainable agricultural production with low emissions and adapted to climate change

27.37

Strengthening national
productive forest chain

Ministry ofAgriculture

14.47

Development of climate-smart
initiatives for climate change
adaptation and sustainability
in prioritized agricultural
production systems (rice,corn, banana, sugarcane,
potato, cattle farming)

Ministry ofAgriculture

Increase in sustainability ofagricultural production toaddress climate change

Ministry ofAgriculture

TOTAL

Difference in greenhousegas emissions from baseline
scenario
Hectares reforested

11.90

Hectares under sustainableagroforestry systems
Hectares of commercial forests
or established protectiveplantations
Technical support service for
efficient use of natural resourcesin strategic ecosystems

1.00

2 trillion

The proceeds from the issuance of bonds will be allocated according to the commitment made in
the framework.

22

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICAFIGURE 3.   Categories of Eligible Green Expenditures
Sustainable water management,
use, and sanitation

40%

Clean and sustainable transport

27%

Ecosystem services and biodiversity16%

Non-conventional energy sources,
energy efﬁciency, and connectivity

Water and circular economy
Sustainable agricultural production,with low emissions and adapted
to climate change

14%

2%

PORTFOLIO BY FISCAL YEAR

1%

35.2%

64.8%

2020

2021

Any projects, assets, or expenditures related to the following
activities are excluded from eligible green expenditures:
●

●

●
●

Exploration, production, and distribution of fossil fuels; burning of fossil fuels as the only source of power generation;
nuclear power generation
Production or trade in any product or activity consideredillegal under national or international laws, regulations,conventions, or agreements to which Colombia is a party
Deforestation or forest degradation
Alcohol, weapons, tobacco, or gambling industries

PROCESS FOR PROJECT EVALUATION AND
SELECTION (GOVERNANCE)The MHCP and DNP lead evaluation and selection of eligible
green expenditures, supported by the Ministry of Environment
and the IDEAM, in the Sovereign Green Bond Working Group.
Ministries and other government entities present projects to
the Green Bond Working Group (Figure 4), which assesses theiralignment with eligible green expenditure criteria, if they areincluded in the national budget that Congress has approved.
The working group reviews the supporting documentation
to verify eligibility of expenditures that each entity presents.
Independent entities may also advise the working group.

23

SOVEREIGN GREEN BONDS

To identify eligible green expenditures, the working group, led by the DNP and the MHCP in linewith their legal functions, evaluates the national budget projects and, in collaboration with the entity
or ministry involved, analyzes the characteristics of each project or expenditure and the amounts
allocated and disbursed each year to ensure compliance with the provisions specified for eligible
green expenditures. Colombia is using its own legal framework, laws, and standards as the first
filter for selection of eligible expenditures, followed by the Green Bond Principles and SDGs 6, 7,
9, 11, 12, 13, 14, and 15. The working group verifies that the eligible projects or expenditures have
performance indicators or potential indicators of impact, as applicable. The Ministry of Environment
helps classify eligible green projects in each of the previously defined categories (Table 2). Goingforward, Colombia will use its national green taxonomy to issue green bonds (Superintendencia
Financiera de Colombia n.d.).
Figure 4 shows the structure used to evaluate and select eligible green expenditures included in thegreen portfolio.

FIGURE 4.   Process for Project Evaluation and Selection
Mapping of environmental projects in
the PGN* with budget appropriations

Evaluation and screening basedon green criteria and SDGs

Eligible green expenditures
selection and classiﬁcation

Green portfolio
approval* PGN is Spanish acronym for National Budget

Green Bond Working Group
Ministry of
FinanceNational Planning
Department (DNP)

Ministry ofEnvironment

IDEAM**

Other line ministries
and public entities

Ministry of Finance & DNP** Institute of Hydrology, Meteorology and Environmental
Studies of Colombia

24

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

MANAGEMENT OF PROCEEDSThe net proceeds of green bonds will be used to finance the general budget, governed by theOrganic Budget Presidential Decree.17
The MHCP verifies that the amounts allocated to eligible green expenditures are equivalent
to the net proceeds, based on information that the DNP, ministries, or public entities provide,
within 1 year after issuance of the bond. It also verifies that no other sources are financing thesame expenditure. The General Directorate of Public Credit and National Treasury manages
any outstanding resources (those that have not been allocated to eligible green expenditures)
according to treasury policy.
The eligible green expenditures in the green portfolio are expected to be higher than the net
proceeds of the green bond, so if any expenditure is ineligible or its amount is reduced at any
point, another may replace it.
17 Decree No. 111 of 1996, II. Article 14. Annuity. The fiscal year begins on January 1 and ends on December 31 of each year. After

December 31, no commitments can be made against appropriations for the fiscal year ending on that date, and appropriation
balances not affected by commitments will expire without exception (L. 38/89, art. 10).

SOVEREIGN GREEN BONDS

3.4 External Review
Vigeo Eiris (2021) issued a second-party opinion that
Colombia’s Sovereign Green Bond Framework is coherent
with the issuer’s sustainable strategic priorities and supports
its climate-change commitments and goals. It is also alignedwith the four core components of the ICMA Green Bond
Principles. Vigeo concluded that the project portfolio is robuston environmental impact and management of ESG risks.

3.5 Transaction Execution Process
ROADSHOW PROCESSThe communication strategy, which the MHCP’s Investor
Relations Office supports, focused on provision of
information by the Colombian government about the Green
Bond Framework, eligible green expenditures, projectcharacteristics and green credentials, governance andinstitutional arrangements, external audit, and the placement
process.
The effectiveness of the investor relations strategy was built
upon a two-way dialogue between government and market
participants. Through different channels (before and afterissuance), such as roadshows and bilateral meetings withlocal and global stakeholders, the Colombian government
ensured credibility and transparency with investors.
Moreover, the MHCP optimized digital platforms Twitterand YouTube, as well as the MHCP and Investor Relations
Colombia websites, publishing key information about thegreen bond framework and issuance in Spanish and English,
to reach a wide audience. COVID-19 did not visibly affect theroadshow process.

EXECUTORS AND ADVISORSThe Deputy Directorate of External Debt within the Directorateof Public Credit and National Treasury of the MHCP led theprocess of developing the Green Bond Framework andsubsequent issuance. The Deputy Directorate of Internal Debt
oversaw the green bond placement. The Technical Deputy
Ministry, General Directorate of the National Public Budget,
Legal Affairs Group, Deputy Directorate of Operations, and
Deputy Directorate of the Nation’s Treasury provided technicalsupport.

25

26

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

The Credit Directorate within DNP collaborated with its subdirectorates in charge of thedifferent projects on budgetary and administrative matters by managing meeting agendas. The
Environmental Directorate provided technical assistance and feedback on selection of projects
and identification of indicators.
The Ministry of Environment and Sustainable Development and IDEAM provided environmental
support in assessing the green credentials of projects and the feasibility of impact and performanceindicators.
The World Bank and the Inter-American Development Bank provided technical assistance to thegovernment.

AUCTION PROCESSThe auctions are run through placement agents that are part of the Primary Dealers Program18. The
MHCP establishes the rules to define the auction cut-off rate, and depending on the amount ofdebt to be issued, bids whose rate is less than or equal to the cut-off rate are allocated.
The MHCP may allocate an additional amount of 30 percent or 50 percent in the first round ofeach auction if the ratio between the amount offered and the amount called is greater than 2 or
2.5 times, respectively.
The auctions have a noncompetitive option in which an additional amount is allocated anddistributed in accordance with the regulations among the placement agents allocated in thefirst round of the auction. The noncompetitive option can be exercised 9 days after the initialauction for the amount offered in the noncompetitive option at the average rate on the day of
the initial auction.

18 The Primary dealers Program was created as a tool for giving depth to domestic public debt markets, with the aim of guaranteeing

primary placement of TES issues and bringing liquidity to the market. The program participants are establishments such as banks, financial
corporations and brokerage firms, monitored by the Financial Superintendence of Colombia. These institutions must comply with aseries of prerequisites that guarantee financial strength, for them to be designated as Primary dealers or Aspiring Primary dealers by
the General Directorate of Public Credit and National Treasury (DGCPTN). These establishments are in charge of buying, intermediating
and promoting the Nation’s debt, enhancing adequate financing conditions for the Nation in capital markets developing public debt
securities. https://www.irc.gov.co/webcenter/ShowProperty?nodeId=%2FConexionContent%2FWCC_CLUSTER-012616%2F%2FidcP
rimaryFile&revision=latestreleased

27

SOVEREIGN GREEN BONDS

3.6 Issuance Details
Colombia issued twin green bonds for COP 1.49 trillion in the local market using the Dutch auction
mechanism with the aim of developing a green capital market, increasing market liquidity, anddiversifying the investor base. With these issues, Colombia became the second country in theregion, after Chile, to issue sovereign green bonds and the first to do so in the domestic market.
Likewise, as an emerging country, Colombia was a pioneer in adopting the concept of twin green
bonds, following Germany.

ISSUANCE OF TWIN BONDS
Colombia used the twin bond concept that Germany introducedin August 2020 for its own green bond program. The aim of
issuing twin bonds with the same tenor, coupon, covenant, andlegal backing was to address concerns related to the green bond’s
pricing and liquidity (Box 1).
Issuance of twin bonds also creates a natural diversification between
conventional and green bond investors, giving them more options
to greenify their fixed-income portfolio at several different points
along the yield curve. This initiative reflects the government’s
commitment to building a green yield curve as a reference point in
the local market next to its conventional yield curve.

ISSUANCE AMOUNTThe first auction of the green treasury bonds 2031 was held on
September 29, 2021, in which, COP 750 billion worth of green
treasury bonds, denominated in pesos and maturing in 2031, wasauctioned.
The bond received offers of purchase for USD 2.3 billion frominvestors, 4.6 times the amount initially called. The solid demand
allowed the issuer to activate over-allotment clauses (in line withthe provisions of Resolution No. 951 of March 31, 2020, of the
MHCP) and increase the initial auction size of COP 500 billion by
50 percent (COP 250 billion), raising a total of COP 750 billion.

BOX 1.
The German Twin Bond Concept
Germany introduced the new conceptof green twin bonds in 2020, underwhich the green bond is issued with thesame financial characteristics as one of
the government’s existing conventional
on-the-run issues, with the green bondhaving the same maturity, coupon rateand coupon payment dates as theconventional issuance.
Because investors have an opportunity
at any time to switch the green twinbond to the corresponding more-liquid
conventional twin bond one to one, there
is a greater liquidity appeal in the greenbond, ensuring that the cost effectivenessof the government bond issuances ispreserved, although investors will not
be allowed to switch the conventional
twin bond to the corresponding green
twin bond.
Source: Danmarks Nationalbank 2021.

28

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

The cut-off rate of the green treasury bond auction was 7.556 percent, which is a difference of 7
basis points from the conventional treasury bond transaction due 2031 (7.630 percent), technicallyknown as a greenium.19
The second auction of green treasury bonds 2031 was held on October 28, 2021, for COP 650
billion, reaching a total issued amount of COP 1.49 trillion. Demand from local and foreign investors
was COP 948 billion—1.5 times the amount initially offered.
The cut-off rate of this green treasury bond auction was 7.877 percent—a greenium of 15 basis
points from the 8.025 percent rate of the conventional treasury bonds 2031 in the secondary
market.
The green treasury bonds 2031 and the conventional treasury bonds 2031 are listed on theElectronic Trading System and Electronic Trading Market. Figure 5 illustrates the greenium.
The auction results demonstrated the healthy appetite of local market investor pools, consistingof banks, foreign investors, institutional investors (administrated pension funds, fiduciary
investment portfolios, insurance company investment portfolios), and other government
portfolios (mainly public pension funds) for Colombian public green securities. About 40
percent of Colombia’s debut green sale went to overseas funds, much higher than the overall
international ownership rate of 26 percent, thereby expanding and diversifying its investor
base as planned. With the second auction, foreign holders accumulated 48.7 percent of total
green bonds issued.

FIGURE 5.   Greenium of Green Treasury Bonds 2031 in Secondary Market as of June 2022
90

40

33

80

30

70
COP billion

50

20

13

9.9

10

40
30

0

20

22-Jun-22

8-Jun-22

25-May-22

11-May-22

27-Apr-22

13-Apr-22

30-Mar-22

16-Mar-22

2-Mar-22

16-Feb-22

2-Feb-22

19-Jan-22

5-Jan-22

22-Dec-21

8-Dec-2124-Nov-21

10-Nov-21

27-Oct-21

13-Oct-21

29-Sep-21

0Volume in COP,
Green TES 2031
Greenium (pbs)
Average

–10

–16

10

Greenium (pbs)

60

–20

Source: Deputy Directorate of Domestic Debt; Deputy Directorate of Internal Financing calculations with data from the Electronic Trading System.

19 It is difficult to attribute such spread to only one factor, which in this case is the green commitment, but given the twin bondstructure, the existence of a greenium could be justified.

SOVEREIGN GREEN BONDS

3.7 Post-Issuance Reporting
For all bonds issued under this framework, Colombia will provide investors with allocation andimpact reports. The MHCP will publish both reports on the MHCP website and Investor Relations
page within 1 year of issuance and then annually thereafter until the allocated amount of eligible
green expenditures is equivalent to the net proceeds of the issuance.
The reports will be prepared based on information that the DNP provides, in accordance with its
functions and the database it manages. This database will include information that each entity
executing eligible green expenditures provides relative to execution of the investment projects
and programs. (See Table 2 for the list of executing entities.) Additional information may berequested from executing entities for reporting of impact indicators, and those entities shall besolely responsible for consolidating the information reported to the DNP and verifying its veracity
and accuracy. Preparation of post-issuance reports started in January 2022, and the World Bankhas been providing technical assistance to build the government’s capacity on impact reporting.

ALLOCATION REPORTING
The MHCP, in coordination with the DNP, will publish an annual report on the use of proceeds thatwill contain:
●
●
●
●
●

Description of eligible green expenditures and total amount allocated, according to informationthat each entity executing eligible green expenditures provides
Alignment of eligible green expenditures with environmental goals and the SDGs
Aggregate amount and percentage of resources allocated with and executed in each green
category
Amount and percentage of resources allocated with recent expenditures and current-year
expenditures
Balance of unallocated proceeds, including implementation information that each entity implementing eligible green expenditures provides; co-financing percentage according to eligible
green expenditure or project, as applicable.

An external independent auditor will verify the allocation report.

29

30

COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICAPERFORMANCE AND IMPACT REPORTING
The MHCP, with input from the DNP and technical support from IDEAM, will publish an impact
report for all or some of the green projects based on information that each entity implementing
the eligible green expenditures provides. The DNP will coordinate with the other line ministries
and public entities involved to integrate the expected environmental impact of the green projects
into the report, which is expected to include the expected impact of eligible green expenditures;qualitative performance indicators and, where feasible, quantitative performance measures ofthe project’s impact; and the methodology and underlying assumptions used in the quantitative
performance indicators.
The first impact report will be published within 1 year of the first green bond issuance and thenannually until the proceeds have been fully allocated. The allocated amounts will be broken down
according to each green category defined in accordance with the World Bank (2018) Green Bond
Proceeds Management and Reporting Guide and published whenever information is available.
This report may be published in the same document as the allocation report.
Table 2 shows some examples of indicators that may be included. The list is not exhaustive.

SOVEREIGN GREEN BONDS

3.8 Key Lessons Learned
Considering Colombia’s socioeconomic characteristics and needs, the government’s decision
to issue green bonds and create a diversified portfolio that transversally encompasses different
environmental objectives and highlights projects that would have gone unnoticed otherwise iscommendable. The issuance secured Environmental Finance’s (2022) sovereign green bond of
the year award 2022.
The MHCP recognizes that the green bond issuance process can keep improving because it was
the first one. It is important to reflect on lessons learned from this process so that they will informfuture issuances. Some of these lessons through the issuance of the green bond are discussed
below.
Benefits of debt management. The green bond was a good fit for Colombia’s Debt Management
Strategy (2018–22), which aims to broaden and diversify the investor base, reduce foreign exchange
risk (by pursuing a larger share of domestic currency financing), and develop the domestic debt
and capital markets. Nearly half of the Colombia’s debut green sale went to overseas funds, muchhigher than the overall international ownership rate for conventional bonds, demonstrating
successful expansion and diversification of its investor base in line with the debt management
strategy. Similarly, the issuance in local currency has helped develop a green bond domestic
market in Colombia by attracting local market investor pools while reducing foreign exchange
risk otherwise associated with issuances in foreign currencies. Interest cost savings have helped
lower the cost of debt as well.
Definition of “green.” The absence of a national taxonomy and the drawbacks of adopting aninternational one that is not aligned with the Colombian context (low contribution to greenhousegas emissions, importance of biodiversity) made it challenging to define the criteria for eligible
green expenditures. This also presented an advantage, in the sense that the categories and typesof projects selected were tailor made for the country and oriented to contributing to its updated
NDC. Despite the difficulties, the result was a diversified project portfolio that transversallyencompasses Colombia’s environmental priorities while highlighting sectors and projects thatwould have gone unnoticed. Once the Colombian taxonomy is available, it will be necessary toincorporate defined green activities into the framework.
Project portfolio size. The first filter for a project to be eligible is that it has a budget allocation.
Several of the environmental projects that executing entities proposed did not have a budget
allocation or were in an early stage of the project (prefeasibility). Although Colombia was able toidentify a sizeable green expenditures portfolio, this suggests that there is significant opportunity
to include priority environmental projects in the budget. In the future, as governments
mainstream the sustainability framework into their operations and if investor appetite for green
bonds continues, it is likely that more government expenditures will be tailor made for suchfinancing. This could create massive opportunity for more innovative green projects aligned with
Colombia’s NDC.
Sovereign Green Bond Working Group. Article 4 of Law No. 2073 of 2020 delegates responsibility fordeveloping frameworks for issuance of sovereign thematic bonds to foster sustainable development
to the MHCP. Unlike conventional bonds, with green bonds, it is necessary to work with otherdepartments and line ministries in charge of executing budgets to identify eligible expenditures
and allocate bond proceeds. Coordinating with various line ministries responsible for executing thebudget is typically challenging for sovereign issuers, and it was no different for Colombia. It was
not possible to constitute a formal working group through an administrative act because of legal

31

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

and logistical complexities, but some responsibilities of the main actors of the working group wereincorporated by Article 89 of Law No. 2159 of November 2021 and Article 61 of Decree No. 1893
of December 2021. Support of the Budget Directorate and the Treasury was critical in defining thecriteria and guidelines for management of resources from the issuance of the green bond.
Because the first portfolio of projects includes only investment budget, participation of the DNP in
the process was critical. Although the Directorate of Environment and Sustainable Developmentof the DNP participated in the selection process of projects and indicators, the Credit Deputy
Directorate of the DNP compiled the codes of the projects in the investment budget system andthe budgetary information, which was critical in the interaction with its technical directorates incharge of monitoring the various projects. Coordination with a public entity with a small but highly
trained staff base was particularly valuable in generating technical knowledge about environmental
criteria, although it will be important to formalize the commitments of the working group and themethodology for evaluation and selection of green projects.
A reflection on the second party opinion. In countries like Colombia, social issues such as income
inequality, lack of healthcare facilities, and poverty are as pressing as, if not more than environmental
issues. Since public finances are limited, it is challenging for the government to issue green bonds
whose proceeds can go only to limited environmental projects that do not directly address equallyimportant social issues. The second party opinion providers such as Vigeo Eiris ensure that the
projects identified for green bond allocation are indeed green as per their internal methodology
and international standards. Although such external scrutiny and verification is important to ensure
greenness of the identified projects, it also limits the government’s ability to be more flexible interms of including projects that address social issues in additional to environmental.

4

FUTUREOPPORTUNITIES
4.1 Expanding Beyond Green Bonds
Most ESG bond instruments globally, including in Latin America, are green, social, and sustainability
bonds, with sustainability-linked bonds becoming increasingly popular in the region, constituting
almost 80 percent of bonds issued in 2021 by some estimates (BBVA 2021), although sustainabilitylinked bond development has been limited to countries such as Brazil and Mexico. In Colombia,
the first sustainability-linked bond, which IDB Invest structured and wrote, was issued in late 2021.
Colombian issuers could work toward promotion of sustainability-linked bonds to attract capitalfor sustainability-linked projects, providing greater flexibility to investors to invest in inclusive socialand environmental development projects.

4.2 Enhancing Engagement with Investors on ESG
Issuance of green, social, and sustainability bonds is often the first step that debt management
offices can take to increase transparency and better communicate to investors the risks andopportunities that national development plans and goals present. Investors are increasingly seeking
this information to assess the value of their investments and, beyond that, trying to understandwhat products they can support that make a positive difference. Issuance of the sovereign green
bond was an important step for Colombia in this regard. MHCP should build on this first step andproactively and systematically communicate ESG information to address investor expectations formore disclosure. Proactive engagement and better communication with investors can create acompetitive advantage (World Bank 2020b). The World Bank toolkit for sovereign debt managers
lists actions sovereign debt managers should take to ensure that they meet investor expectations
for information on ESG (Figure 6).

FIGURE 6. T oolkit for Debt Management Offices for Communicating on
Environmental, Social and Governance (ESG) Topics with Investors
PHASE I

PHASE II

PHASE III

PHASE IV

Take stock of
ESG practices
and demand for
information

Discuss theimplications for thefunding programand debt strategy

Decide what
ESG information
to present (andhow)

Actively
incorporate
ESG in outreachmaterial

Source: World Bank


33

5

CONCLUSION

Sustainability labeled bonds and bond and equity indices have continued to grow globally.
The combined labeled issuance of green, social, sustainability, and sustainability-linked bonds
totaled nearly USD 1.08 trillion globally by the end of November 2021, which is nearly 100
percent year-on-year growth over the equivalent period in 2020 (Bloomberg Terminal 2021). In
late 2021, Colombia became the first Latin American country to issue a sovereign green bond in
local currency, which was oversubscribed, illustrating growing appetite for the green transition–
focused investment class. Issuance in local currency supports domestic capital markets andshields borrowers from currency risk in times of economic shocks.
The successful debut of sovereign green bond issuance generated several important lessons
that could be applicable to other emerging countries issuing their first sovereign green bonds.
Any such transaction must be managed in the context of fiscal responsibility. Countries
must be careful not to exacerbate debt burdens, so issuance of a green bond should beconsidered within the fiscal parameters of a sustainable fiscal envelope. In Colombia, sovereign
green bonds were included in the financing plan of 2021, within the fiscal parameters andbudget.
Adhering to a sound public debt management strategy is critical. It is necessary to build
institutional capacity to manage public debt and ensure that the transaction is structured in linewith the medium-term debt management strategy in terms of currency, maturity, and interest-ratecomposition so as not to increase debt servicing costs or financial risk, including refinancing risk.
The entity with direct responsibility for borrowing on behalf of the central government shouldcarefully consider the advantages and disadvantages of issuing such bonds, set objectives, andimplement the strategy in line with the medium-term debt management strategy.
Investment priorities should be aligned with the country’s development goals. The
underlying investments should support the economic, environmental, and social objectives of
the country, which are part of the national development or sector strategy or are in support of the
global SDGs. Investments tied to these higher-level objectives can be more attractive because of
their potential contribution to the improvement of public welfare.
Investors expect the highest levels of accountability and transparency in labeled green
bond transactions. Structuring of the transaction requires steps that debt management
functions or offices may not be familiar with, such as developing the bond framework, analyzing
the portfolio to ascertain the potential size of eligible expenditures, defining governanceprocesses for evaluating eligible projects and management of proceeds, and preparing postissuance allocation and impact reports. Implications for the debt management function or office


35

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COLOMBIA: THE FIRST SOVEREIGN GREEN BOND IN LOCAL CURRENCY IN LATIN AMERICA

are considerable. It is important to coordinate with line ministries; secure their commitment fromthe outset; enlist assistance to identify eligible expenditures; and ensure accurate, complete,timely reporting of environmental impact.
Where possible, it is advisable to adapt to an applicable green finance taxonomy to identify
eligible green projects. The Colombian government’s decision not to follow an internationaltaxonomy on its first green bond issuances in 2021 was based on the reasoning that classifying
projects into categories or thresholds designed for countries with different geographic,
macroeconomic, and social characteristics would substantially limit the portfolio and the variety
of projects, although there is a risk of selecting projects that do not adhere to generally acceptedinternational definitions of green projects. To the extent applicable, it is therefore recommended
that some widely accepted green taxonomies be followed while allowing some flexibility to adapt
to local contexts and priorities. On April 11, 2022, the Colombian government published its Green
Taxonomy (Superintendencia Financiera de Colombia n.d.), which has followed international
definitions of green projects as well as incorporated country specific characteristics, and hence
can be used extensively to identify projects for future green bond issuances.

REFERENCES

BBVA. 2021. “Sustainability-Linked Bonds: Great News for Sustainable Financing in Latin America.
https://www.bbva.com/en/sustainability/sustainability-linked-bonds-great-news-for-sustainablefinancing-in-latin-america/.
BizLatinHub. 2021. “5 Reasons to Invest in the Colombian Coffee Business.” https://www.bizlatinhub.
com/invest-colombian-coffee/.
Bloomberg Terminal. 2021.
Bundesrepublik Deutschland Finanzagentur GmbH. 2020. “First Green Federal bond successfully
placed.” Frankfurt. Retrieved June 13, 2022, from https://www.deutsche-finanzagentur.de/fileadmin/user_upload/pressemeldungen/en/2020/2020-09-02_pm09_First_Green_Federal_bond.pdf.
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