2021: The Year of Sustainable Finance

Another unexpected and surprising year of pandemic has come to an end. If 2020 was disruptive, 2021 wasn’t that far behind. New ways of dealing with the coronavirus emerged and with it, the status quo of what we held as “normal” was once again shaken to its deepest roots. The planet has been in an unprecedented situation for more than two years, which has put to test health systems, governments and their public policies, economic systems, human relations, and the way of doing business.

The green and sustainable investment market in Mexico turned out to be resilient to the global situation, once again achieving record numbers. Highlighting the most important milestones in 2021, a total of 39 bonds with green, social or sustainable labels — financial instruments intended specifically to finance sustainable projects — were placed, more than three times the issuance in 2020.

The total amount of labeled instruments in the year totaled MX$181.77 billion (US$8.9 billion), a figure 2.7 times higher than the amount issued in 2020 and 17.8 times higher than in 2019. The largest debt issuance was from the Mexican government, with a sustainable sovereign bond of €1.25 billion (US$1.42 billion). This was the second bond of its kind issued by the federal government, where the resources obtained will be designated to implement strategies to reduce social and economic gaps and promote sustainable development goals.

The sustainable finance market in Mexico is on the rise, with numbers that continually exceed the previous year. However, the growth of the market in 2021 was outstanding.

This trend is a mirror of what happened in financial markets globally. Governments and international institutions are gradually placing a higher priority on green finance, allocating more resources to achieve various commitments, such as GHG emissions reductions or reaching net zero emissions. According to the Climate Bonds Initiative, the total global debt to date issued in green bonds amounts to US$1.5 trillion, with US$452.2 billion in 2021 alone. This is an increase of 52.2 percent over the figure reached in 2020 (US$297 billion), which, in itself, already was a record

On the other hand, COP26 represented an important boost for the transition toward a sustainable economy. In early November, more than 190 world leaders and tens of thousands of government, business and citizen representatives gathered for the 26th session of the Conference of the Parties (COP26) in Glasgow. In this forum, a series of commitments and plans on how to urgently address climate change were announced by the public and private sectors. The financial sector as a key driver for a sustainable future was one of the most striking lessons from the world conference.

The creation of the Glasgow Financial Alliance for Net-Zero (GFANZ) stood out among the main announcements at COP26. This is an alliance made up of 450 financial institutions that together account for US$130 billion in assets under management, a figure that represents 40 percent of global financial assets, which are now committed to supporting the transition to a low-carbon economy through responsible investment.

Additionally, 28 countries and development banks, which cover a third of the world's GDP, committed to end the financing of fossil fuels abroad by the end of 2022, prioritizing the transition to clean energy. This will imply a reduction of US$8 billion allocated to the funding of fossil fuels each year.

Our northern neighbor published its Emergency Plan for Adaptation and Resilience (PREPARE), in which it states how it will provide US$3 billion per year to developing countries to finance “adaptation strategies” in the face of climate change. This initiative will mobilize public and private capital from the US, creating opportunities for those companies aware of the social and economic impacts of environmental degradation.

Meanwhile, in Mexico, the Green Finance Advisory Board (CCFV) held the fifth edition of the most important forum on sustainable financing in Mexico and Latin America: Sustainable Finance MX 21. At this event, the public and private sectors met to share international trends and the most relevant developments in the matter. Among the main topics addressed were the post-COP26 global panorama, opportunities for a sustainable economic recovery, carbon neutrality commitments, key sectors for transition, government strategy and green financing in banking and stock markets.

Additionally, within the framework of this annual event, the creation of the Task Force on Climate-related Financial Disclosures (TCFD)-Mexico Consortium was announced, which will be led by the academy to widely promote financial disclosure recommendations. This great advance goes in hand with the Request to Public Issuers on the Disclosure of Environmental, Social and Corporate Governance Information, an initiative relaunched by the CCFV in 2021 where more than 80 financial institutions, which jointly manage assets of MX$6.7 trillion (US4327.4 billion, and equivalent to 27.6 percent of the national GDP), unanimously  reiterated their consensus to request issuers listed on stock exchanges to disclose environmental, social and corporate governance (ESG) information in a standardized and consistent manner, using the reference frameworks of the TCFD and the Sustainability Accounting Standards Board (SASB) standards.

These were the main highlights in terms of sustainable financing in Mexico and the world in 2021. This year, a growing demand for assets and projects linked to sustainability, along with continuous efforts to standardize metrics and performance indicators through taxonomies, reference frameworks and new accounting standards are to be expected. Additionally, greater international support will flow to emerging markets for the sustainable development of their economies. Although it is still quite new, this type of cooperation may be a vital catalyst in the coming decades, pushing our region toward a sustainable and resilient economic transition.