Pure green bond issuance in Latin America plummeted to a three-year low in the second quarter due to greater risk aversion on global markets and a preference for other sustainable bonds by local players.

Environmental-focused debt operations during the period fell 88.7% year on year to $270 million according to the Climate Bonds Initiative, a U.K.-based company that tracks green debt globally. The total was also considerably below the $1.72 billion in funding secured in the previous quarter.

There has been limited activity in other markets in the region. M&A deals have ticked downward, and capital offerings are scarce.

Latin America typically accounts for 3% of all global issuances in the market, a figure that has fallen below 1% this year with $2 billion issued to date. Europe remains the highest-contributing region to green debt globally, but its share of issuance dropped to 41.7% in the quarter from 54.8% a year ago.

Latin American credit risk rose in the second quarter as higher interest rates and looming political risk created a challenging outlook for regional economies. The cost of insurance against default rose in all of the region's major economies over the period, as measured by credit default swaps, or CDS.

Chile, one of the most active sovereign issuers in the local green bond market, saw no issuances this quarter. Political uncertainty has seeped into markets in a country traditionally perceived by global investors as a safe haven in the region. CDS rose by 60.7% in the quarter as the country prepares to vote for a new constitution later this year.

During the first quarter, however, the country was able to break new ground by issuing $4 billion in a sovereign sustainability bond, another format across sustainable bonds in which proceeds are not applied to environmental projects alone but rather a combination of factors.

"Adverse global market conditions have hurt Latin America's labeled bond issuance," analysts from Bank of America wrote in a recent report. The investment bank stated that these bonds had fallen further than overall debt issuance in the region and that both sustainability and sustainability-linked bonds (two different types of instruments) have been the preferred vehicle for labeled bonds investors, more than green and social instruments.