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Latin Lawyer Deal of the Year Awards to recognise ESG-led finance

Latin Lawyer Deal of the Year Awards to recognise ESG-led finance Credit: shutterstock.com/ TH2I Shutter Rich

Our Deal of the Year Awards 2020 will recognise deals in a new category: sustainable investing. Here's what we're looking for in the nominations for these kinds of deals.

The category will recognise finance and investment transactions that are intended to have a verifiable positive impact on the receiving entity’s environmental, social and governance (ESG) performance.

ESG-led financings and investments are a growing phenomenon in Latin America, as creditors and corporates alike position themselves to back the transition to carbon neutrality and support initiatives to advance the communities in which they operate. They have become especially relevant within the context of the covid-19 pandemic, which has triggered a sweeping economic crisis and forced millions below the poverty line. Social bonds, for example, seek to achieve positive socio-economic outcomes for vulnerable populations – such as those negatively affected by the pandemic – by financing access to essential services, affordable housing, employment generation, food security and socio-economic advancement.

Latin Lawyer’s new awards category is in addition to existing categories dedicated to capital markets and banking finance transactions, where firms should continue to nominate deals without a sustainability slant.

The nature of this field – which is evolving and currently lacks legal definition in Latin America – is such that a broad variety of transactions will be eligible for nomination under this category. However, there are several defining characteristics that we would expect to see on ESG-led financings.

They will likely be conditional on borrowers establishing predetermined objectives to achieve measurable environmental and social improvements for the benefit of the wider society in which they operate. Intended beneficiaries of the investment will be clearly identified, and there will be transparency around what the proceeds will address.

Eligible transactions will likely follow one or several voluntary governing standards established by industry groups. These include the Social Bonds Principles and Green Bonds Principles promoted by the International Capital Market Association (ICMA), as well as the Green Loan Principles and the Sustainability Linked Loan Principles promoted by the Loan Syndications and Trading Association (LSTA). Other examples of applicable directives include guidelines established by international non-profit Climate Bonds Initiative (CBI) and Principles for Responsible Investment, a UN-supported network of investors that works to promote sustainable investment, as well as the UN Sustainable Development Goals. This is by no means a definitive list and there are other relevant principles governing the evolution of this form of investing, which we invite firms to tell us about in their nominations.

Financing transactions with an intended social or environmental impact will likely have been approved by one or more third parties – such as sustainability ratings companies Sustainalytics and Vigeo Eiris – to verify their demonstrable commitment to achieving stated goals. These certifiers exist both inside and outside the region.

ESG-led investment is a novel but growing domain. Our decision to add this category reflects the increased number of these transactions Latin Lawyer has reported on over the course of 2020.

In Latin America, there is currently no single governing organisation overseeing these types of transactions and all governing standards are voluntary. There is also a lack of official regulatory frameworks, although Colombia’s banking regulator became the first in Latin America to issue an outline for green bonds earlier this year. In doing so it incorporated international standards, including those set out by the ICMA. Brazil’s Central Bank also signed a memorandum of understanding with the CBI in 2020, although it stopped short of establishing its own framework.

Several law firms, particularly in Brazil, have matched clients’ growing adherence to ESG principles by establishing dedicated practices focused on sustainability and social impact matters. Among other things, these advise clients on impact investing.

Latin Lawyer will invite law firms to nominate deals for our next Deal of the Year Awards later this week. Firms will be able to nominate deals and cases under 11 different categories. The shortlists will be announced in early 2021.

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