Government of Peru capacity building: supporting its first sovereign Green Bond

• The impact of COVID-19 caused the economy to contract more than 40% year-on-year in April 2020 – meaning Peru’s government is endeavouring to achieve a sustainable economic recovery, while also incorporating environmental and social aspects into its investments. In particular, by supporting projects with high potential to provide a positive impact to women and vulnerable groups
• Sustainable bonds are innovative financial instruments used by governments to finance public investment projects with environmental and social impacts – crucial to supporting both climate ambitions and post- COVID economic recovery
• Specifically, through the Green Bond Roadmap, the government identified GBs as an innovative instrument to catalyse both emissions reduction and the promotion of equitable access to (and use of) green practices and technologies
• However, the country lacked a framework to issue green and sustainable bonds – a gap that UK PACT has sought to address through this project

The project developed a Sustainable Bond Framework (SBF), providing a transparent and efficient mechanism to guarantee bond proceeds would finance Peru’s green and inclusive economic recovery. Crucially, from a gender equality and social inclusion (GESI) perspective, it prioritised the following for project financing: 

• Support for vulnerable communities
• Access to affordable housing, education and essential health services
• Support for SMEs and social programmes to alleviate and prevent unemployment

The framework benefitted from continuous counterpart input, alongside strong support from political leaders. This maintained continuity in development, thus allowing for quicker adoption after completion.

The SBF also received a Second Party Opinion from international verification and certification firm Sustainalytics Inc., certifying the framework’s alignment with international best practices and the International Capital Markets Association’s (ICMA) principles.

The SBF was approved by the Ministerial Resolution RM 221-2021-EF-52 (July, 2021), with the first bonds issued in three portions approximately seven months into the project:

• Two sustainable bonds earmarked for both green and social projects with a value of US$ 3.25 billion
• One social bond with a value of EUR €1 billion

The proceeds from the bonds’ issuance will help the government obtain affordable, long-term financial resources earmarked for investments in different environmentally sustainable and socially inclusive areas. They will also support Peru to achieve its Nationally Determined Contributions (NDC) targets while addressing social inclusion, poverty reduction and green post-COVID economic recovery. 

Finally, the project trained about 180 private sector C-level executives, and designed a national communication campaign to raise sustainable bonds awareness among public and private sector entities.

GGGI engaged with Gender Focal Points (GFPs) from the 10 Ministries involved who helped assess whether identified projects were green or social. The SBF was developed with Peru’s Ministry of Economy and Finance (MEF) Treasury Directorate, which is led by a woman and is 75% comprised of women.

During the training and capacity building sessions provided to the private industry, academia, NGOs, and government (and tailored to the Peruvian context), thematic bonds were promoted as an innovative financial instrument to fund investment projects with positive impacts on women and vulnerable groups. The SBF – structured around Peru’s National Development and Social Inclusion Policy and National Gender Equality Strategy – included GESI priorities and GESI-specific key performance indicators (KPIs) to measure impact.

GGGI ensured the process and methodology included GESI aspects and reported on KPIs such as: total number of counterparts disaggregated by gender and age, number of counterparts for each program being implemented, number of counterparts living in poverty and in extreme poverty.

GGGI also developed GESI-specific communication and training material, including a video in which a young girl from a local rural community explains how vulnerable groups can lack access to water and sanitation and how SB financing can affect positive change.

The Sustainable Bond Framework aims to offer the necessary elements to develop projects with a low carbon footprint. However, more work is needed to ensure outcomes are sustained and enhanced to:

• ensure the efficient allocation of bond proceeds through, for example, the development of a process to monitor climate-relevant public expenditure
• promote private sector participation in the bond market and increase Peru’s private sector contribution to climate targets

From a GESI perspective, the anticipated long-term outcomes include:

• Financing of projects that improve financial and social inclusion and/or increasing the access to education, housing, and health services for vulnerable groups
• Providing loans or financial support to SMEs facing financial distress, promoting competitiveness and employment of vulnerable groups