Environmental Finance's Sustainable Debt Awards 2024

Sustainability-linked loan of the year - SSAs/sub-sovereigns: Government of Uruguay

In October 2023, the World Bank approved a $350 million sustainability-linked loan for Uruguay, which is believed to be the first sustainability-linked loan deal involving a sovereign country.

Carlos Felipe JaramilloThe loan's financing costs are dependent on the country reducing the intensity of methane emissions from beef production by one percentage point or more above the levels to which Uruguay has committed in its nationally determined contributions (NDCs) as part of the Paris Agreement.

This goal is intended to incentivise Uruguay to outperform its NDC commitments for the methane emissions intensity of beef production over the period 2025-2034.

Uruguay said the target is especially material and ambitious for the country as agriculture accounts for up to three-quarters of the country's methane emissions, with the majority generated by livestock.

"The terms of the sustainability-linked loan instrument that we agreed with the World Bank is a concrete example of financial innovation and climate ambition working together and reinforcing each other, underpinned by strong inter-ministerial coordination," commented Azucena Arbeleche, minister of economy and finance of Uruguay.

"As a food supplier to the growing world population, Uruguay intends to meet the challenge of boosting agricultural and livestock production while, at the same time, reducing the intensity of methane emissions to mitigate climate change and contributing to global public goods".

Minister ArbelecheTo achieve its target, Uruguay intends to roll out its Livestock and Climate programme nationally with the aim of improving efficiency, sustainability, and economic returns for producers.

"As co-chair of the World Bank-IMF Development Committee, Uruguay advanced the notion, back in October 2021, that we needed to develop new financing instruments that provide the right financial incentives for countries to contribute to global public goods, such as mitigating greenhouse gas emissions and enhancing nature conservation," added Arbeleche. "Specifically, countries that live up to their commitments and show good environmental performance should pay lower interest rates."

According to the Uruguayan government, the potential interest savings over the life of the loan will be $12.5 million.

Carlos Felipe Jaramillo, World Bank vice president for the Latin American and Caribbean region, added: "At a time when we urgently need to redouble our efforts to address the climate crisis, I am proud that a Latin American country is the first to benefit from an innovative World Bank mechanism that incentivises key actions to protect the planet.

"Uruguay once again demonstrates global leadership through institutional and financial innovations—as it has done before in areas such as smart agriculture, reducing carbon emissions and promoting renewable energy—that serve as a reference for other developing countries."

In October 2022, Uruguay broke new ground by becoming the first sovereign to issue a sustainability-linked bond which includes a step-down coupon feature.

The coupon of the issuance was tied to percentage changes in the carbon intensity of the country's real gross domestic product (GDP) and the conservation of the area of the country's native forest.

However, unlike Uruguay's sustainability-linked bond, the present deal does not entail a step-up if the country misses the target.