Sustainable finance, multilateralism and global public goods

Uruguay issues a sovereign bond aligned to environmental indicators: an innovative instrument for the sustainable development

July 10, 2023

El apoyo a las acciones climáticas ha sido durante mucho tiempo un área clave de cooperación para el PNUD en Uruguay.

PNUD Uruguay

Uruguay has taken a significant stride towards sustainable finance by pioneering the issuance of a sovereign sustainability linked bond indexed to climate change indicators aligned with the targets set by the country’s Nationally Determined Contribution (NDC) to the Paris Agreement of the United Nations Framework Convention on Climate Change. This innovative initiative reaffirms Uruguay’s commitment to sustainability and low-carbon economic development and offers a replicable instrument with substantial potential to the multilateral arena.

Supporting climate actions has long been a key area of cooperation for UNDP in Uruguay. Building on this experience, UNDP played a crucial role in this initiative, accompanying Uruguay on its strategy to align finance with sustainable development to achieve the 2030 Agenda and its Sustainable Development Goals (SDGs).

Uruguay strategic sovereign action has the potential to generate a paradigm shift in the field of sustainable finance. The country, known for its strong multilateral tradition and solid fiscal and climate policies, has included two unprecedented conditions to the usual exercise of issuing debt. It has set ambitious climate targets, agreeing to pay a higher interest rate if these targets are not met and receiving a reduction in the interest rate if they are exceeded.

By accepting this symmetrical rate adjustment mechanism, the institutional investors participating in this transaction demonstrate their commitment to supporting a global public good. This proposal, initially seen as potentially unattractive to the financial world, exceeded expectations with an offer of $1.5 billion dollars and favorable market conditions.

"Uruguay strategic sovereign action has the potential to generate a paradigm shift in the field of sustainable finance"


Uruguay’s success prompts reflection on whether similar conditions can be applied to other contexts, sectors of public policy, or even scaled within the field of climate change itself. An affirmative answer to any of these three aspects opens a wide range of potential for aligning financial resources with the generation of global public goods. The application of a similar strategy in larger or megadiverse countries sparks opportunities for further exploration.

The relevance of multilateralism in this initiative cannot be overlooked. The indicators linked to this bond align with Uruguay’s NDCs to the Paris Agreement and follow the measurement and reporting methodologies established by the United Nations Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC).

The multilateral arena provided the necessary framework to develop systems for measuring, reporting, and verifying national climate commitments, enabling Uruguay to have globally tested methodologies to advance in this innovative field.

To promote and scale up these types of instruments, it is crucial to consider the conditions required to create a global mechanism for financing the costs of a higher interest rate in case of non-compliance with targets. Uruguay has implemented a scheme of rewards and penalties that it will honor with sovereign funds if targets are not met. Exploring the possibility of a global mechanism to promote such debt schemes and facilitate their adoption by a larger number of countries becomes a key consideration in the pursuit of global public goods.

The government of Uruguay has sought the support of organizations like UNDP and the Inter-American Development Bank (IDB) in this innovative process. UNDP plays a crucial role in verifying the sovereign report on the performance indicators proposed in the bond. This collaboration has not only challenged UNDP to think about the new opportunities and cooperation models but has also capitalized on the global efforts to support countries in meeting their climate commitments.


Looking ahead:
Uruguay's pioneering efforts are not isolated. Other countries in the region and around the world are embarking on similar trajectories. UNDP remains committed to learning from and supporting initiatives that align the finance agenda with the fulfillment of the 2030 Agenda and its SDGs.