Goldman Plays ESG Card in ‘Strategic’ Latin America Debt Push

(Bloomberg) -- Goldman Sachs Group Inc. is boosting its presence in Latin America with a focus on debt for social and environmentally-friendly uses amid growing demand for sustainable emerging market bonds.

“Latin America is an incredibly strategic region of the world for us so you should see more influence and more emphasis there going forward,” said Christina Minnis, co-head of global credit finance at Goldman, in a Sept. 28 phone interview.

The firm opened an office in Peru this year, adding to its presence in Sao Paulo, Mexico City, Santiago, and Buenos Aires. It has structured more than $10 billion of bond sales from Latin America in 2020, making it the fourth biggest underwriter, up from ninth last year, according to data compiled by Bloomberg.

Central to Goldman’s strategy are deals with an environmental, social and governance focus. The bank was lead underwriter on seven Latin American ESG-linked bonds this year, compared with just one in 2019, according to data compiled by Goldman. The coronavirus pandemic triggered a rise in sales of such debt from developing countries, including a record amount of social bonds as poorer nations struggle to combat the health crises.

Governments and companies can lower funding costs by up to 20 basis points by using an ESG format, said Carlos Mendoza, Goldman’s head of Latin America debt capital markets. This label also broadens the pool of potential investors amid growing fears about the virus, economy and U.S. presidential elections.

“The emerging market-dedicated investor base becomes a bit more selective” during periods of heightened volatility, said Mendoza.

International Capital Market Association guidelines released in June were expected to encourage more borrowers to sell bonds tied to general environmental targets, rather than specific projects. The bank was a lead manager on a $750 million sustainability-linked bond for Brazilian paper producer Suzano SA, which pays a higher coupon if it misses greenhouse gas emission goals. It was the first of its kind in Latin America, according to BloombergNEF, and only the second globally after Italian utility Enel SpA raised $1.5 billion last year.

“That’s one area that we actually see real opportunity and continued innovation,” said John Greenwood, co-head of project, infrastructure and principal finance at Goldman.

Covid Loans

Goldman this year helped structure Ecuador’s $400 million social bond for mortgages to low- and medium-income borrowers. It also worked on a $360 million loan to Banco Nacional de Panama for Covid relief and financing for Ecuador-based Banco Pichincha’s lending to women-owned businesses. The deals used guarantees from the Inter-American Development Bank and World Bank to help reduce costs, Greenwood said.

The firm expects to do a handful of new sustainable deals in Latin America before the end of the year as companies take advantage of windows of opportunity, according to Mendoza.

“Additional ESG-linked sovereign issuance will be probably more active next year,” he said.

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