Sustainable finance has acquired, in recent years, a very important role in the promotion of initiatives to reduce the destructive effects of the climate and social crisis. Among these proposals, green, social and sustainable bonds (the “SGS Bonds”) stand out as a form of responsible financing chosen by both public and private institutions.
Along these lines, and as will be explained below, the National Securities Commission (the “CNV”, by its acronym in Spanish) and Bolsas y Mercados Argentinos S.A. (“BYMA”, by its acronym in Spanish) have promoted a series of regulations with the purpose of encouraging the use of this tool both as a means of raising financing and as an investment method.
SGS Bonds are marketable securities intended to finance or refinance projects, in whole or in part, with social or environmental benefits, or a combination of both.
- Green Bonds
The Green Bond Principles (“GBP”) define green bonds as any type of bond where the proceeds will be applied exclusively to finance or refinance, either in whole or in part, eligible new or existing green projects that are in line with the four main components of the GBP (the “Green Bonds”).
The main components of this type of marketable securities are: use of funds, project evaluation and selection process, fund management and reporting.
- Social Bonds
The Social Bond Principles (“SBP”) define social bonds as any type of bond in which the funds will be applied exclusively to finance or refinance, in part or in full, eligible new and/or existing social projects that are aligned with the four main components of the SBP.
These types of bonds are intended to help address or mitigate a certain social problem and/or achieve positive social outcomes especially, but not exclusively, for a certain group of the population (the “Social Bonds”).
Like GBPs, SBPs define the use of funds, the project evaluation and selection process, the management of funds and the publication of reports as their main components. For the issuance of Social Bonds, it is particularly relevant to integrate the gender perspective in the design of the project to be financed, in order to favor diversity and/or to reduce gender gaps and differential impacts.
- Sustainable Bonds
Sustainability Bond Guidelines (“SBG”) define sustainable bonds as bonds where the proceeds will be applied exclusively to finance or refinance, in whole or in part, a combination of green and social projects that are aligned with the four main components of the GBP and SBP. In other words, they accumulate the characteristics of Social Bonds and Green Bonds (the “Sustainable Bonds”).
As a whole, the SGS Bonds have international standards widely accepted by the stock exchanges that, to date, have implemented a specific segment or panel for their display and listing.
In Argentina, such standards are recognized by the CNV and adopted by BYMA, which is in charge of granting the public offering and listing authorization, respectively.
In this regard, BYMA developed a guide and a regulation for the issuance and listing of SGS Bonds in BYMA, as well as a regulation for the listing of trust securities and/or quotas of closed-end Social, Green and Sustainable mutual funds (“SGS MF”).
This initiative seeks to provide the market with a new type of financing that gives issuers, investors and stakeholders in general the possibility of being part of the objective set forth by the Kyoto Protocol and the Paris Agreement to mitigate the effects of global warming and to promote greater environmental responsibility as set forth in the principles of the United Nations Global Compact.
In the same line, the CNV, through different general resolutions, has incorporated new financing possibilities for companies that wish to raise funds in the capital market, in the form of issuances of corporate bonds with social impact.
Within this framework, the implementation of General Resolution 940/2022 establishes a special regime for companies that generate social impact and, thus, incorporates to the current regulations the possibility of financing social projects for up to 10 million UVAs.
The main objective is to establish a virtuous circle between inclusion, financial education and the consolidation of a social bond market in the country.
In this case, companies that do not qualify as small and medium-sized companies are allowed to enjoy the benefits of this regime as regards the simplification of the procedure and request of requirements, provided that the project to be financed qualifies as social, in addition to having a report from an independent third party -in this case from a risk rating agency- that certifies the social nature of the issuance.
The criteria for the categorization of a bond as social are set forth in the CNV regulations and are called “Guidelines for the issuance of Green, Social and Sustainable Bonds” or “Thematic Bonds”, which, in turn, replicate international principles on the matter.
On the other hand, the CNV has regulated the creation of open-end mutual funds with the purpose of massively promoting investment in SGS Bonds and other related products.
Which are the benefits for issuers when issuing an SGS Bond?
(i) They provide an additional source of sustainable financing.
(ii) They allow a better synchronization of the durability of the instruments with the life of the project.
(iii) By taking advantage of the growing demand for sustainable development, they help capture new business opportunities, improve investor diversification and attract long-term capital.
(iv) Enhance their reputation.
(v) By attracting growing investor demand, they can generate high underwriting and pricing benefits.
(vi) Attract human resources with interest in working in the company, as it improves their profile.
(vii) Enable the possibility of obtaining tax benefits in certain projects.
(viii) Increase transparency and accountability on the use and management of revenues.
(ix) In the case of mutual funds established under the Special Regime for Sustainable and Sustainable Collective Investment Products, SGS Bonds -in all their variants- and trusts established under the Special Regime for Solidarity Financial Trust Programs for Assistance to the National, Provincial and/or Municipal Public Sector, a reduction in the supervision and control fees and in the authorization fees was established.
(x) On the other hand, BYMA establishes a 100% discount on listing and regulatory publication fees for SGS Bonds that comply with the requirements stipulated in the Regulations for the Listing of Corporate Bonds and/or Public Securities and for their Incorporation to BYMA’s SGS Bond Panel, or in the Regulations for the Listing of Trust Securities and/or SGS MF.
What are the benefits of investing in SGS Bonds?
(i) They allow to obtain financial returns comparable to those of the conventional track, with the addition of environmental and/or social benefits.
(ii) Contribute to national climate adaptation, food security, public health, energy supply, among others.
(iii) Enable the satisfaction of environmental, social and governance (“ESG”) requirements of their sustainable investment mandates.
(iv) Enable direct investment for greening, or carrying out ecological policies, in the so-called “brown sectors” and carrying out social impact activities.
As we can see, the growth of this type of issuance represents for Argentina the possibility of making new market players become debt issuers and that the funds obtained through the capital market reach the sectors of society that need it most -entrepreneurs, small organizations-, with the consequent impact that is generated.
