Chile issued the world's first sovereign sustainability linked bond this week, the finance ministry said.

The $2 billion sustainability linked bond was issued on March 2, carrying a 4.346% rate or 200 basis points above 20-year U.S. Treasury notes. Demand for the bond reached more than $8 billion, or 4.1 times the original placed amount, spread across investors in Europe, Asia and the Americas. Finance Minister Rodrigo Cerda noted this was a sign of confidence in the Chilean economy.

The bond adheres to the Paris Accord on climate change, including that the country emit no more than 95 metric tons of carbon dioxide and equivalent by 2030, and that 60% of electricity production must be derived from renewable energy by 2032.

Chile was the first country in the Americas to issue a green bond in 2019. With the recent issuance, it has placed about $33 billion worth of socially and environmentally responsible bonds over the past three years, and it is the only country in the world to have green, social and sustainable linked bonds, according to Leisa Souza, head of Latin America at non-profit organization Climate Bonds Initiative.

Sustainability linked bonds are the fastest-growing type of environmental bonds, Anne Van Riel, head of sustainable finance for the Americas at BNP Paribas SA. The bonds are financial instruments designed to provide incentive to meet ambitious climate change objectives by the issuer, which are measured through a series of KPIs. These bonds are not associated with specific green projects, but their coupons depend on the issuer’s attainment of the specified objectives.

In 2019, Latin American green bond issuances saw a notable 46 green bonds issued, primarily attributed to Chile. Sovereigns issued fewer green bonds and more social and sustainability bonds in 2020 and 2021, as countries focused on issues surrounding the COVID-19 pandemic, Souza said.