In 2022, Uruguay and Chile took a step that no other country had taken up to that point: issuing sovereign debt whose interest payments are tied to the country’s performance relative to its environmental goals. The Uruguayan bond, worth $1.5 billion and maturing in 2034, saw—according to the Ministry of Economy and Finance (MEF)—demand of nearly $4 billion, 2.6 times the amount offered, and in 2023 the country decided to return to the market for an additional $700 million. To date, Uruguay and Chile remain the only two sovereigns in the world to have issued this type of instrument.

The logic differs from that of a traditional green bond, which ties the funds to a specific project (such as a wind farm or a wastewater treatment plant): the Uruguayan Sustainability-Linked Bond (SLB) links the cost of the debt to indicators of emissions reduction and native forest area, which are externally verified, with upward or downward adjustments to the coupon rate.

It was a true innovation: it transforms climate commitments—which often remain mere rhetoric—into contractual clauses with real financial consequences. The MEF itself, in its 2025 and 2026 annual reports, acknowledges that meeting the emissions target is not guaranteed: although emissions from the agriculture, forestry, and land-use sectors—which account for 73% of the country’s total emissions—rose in 2023 due to the use of nitrogen fertilizers, they fell significantly in 2024 and are still 2 percentage points away from the indicator’s target (a 50% reduction from the base year), set for 2025. Ultimately, Uruguay could end up paying more for its own debt if it fails to align its commitments, public policy, and private-sector dynamics.

The Uruguayan government’s leadership in capital markets has yet to be reflected in private-sector financing. Sustainability-Linked Loans (SLLs)—the corporate version of this mechanism, where a loan’s margin rises or falls based on sustainability targets—have experienced explosive growth globally: according to BBVA CIB, the market reached EUR 907,000 million in 2024. However, according to Environmental Finance, South America accounts for less than 1% of that volume, far below the 9% it represents in sovereign bonds. And of the few cases publicly reported in the region, none are from Uruguay.

Some examples include the case of LATAM Airlines, which in 2024 signed its first SLL with Credit Agricole and BNP Paribas for USD 300 million tied to carbon intensity per metric ton transported, making it the first South American airline to secure this type of financing.  That same year, FIBRA Macquarie, a Mexican real estate fund, took out a USD 150 million loan from the International Finance Corporation (IFC) linked to the green certification of its entire portfolio of industrial parks,  Or take the case of Banco Finandina in Colombia, which also signed an SLL with the IFC in 2025 for up to USD 75 million to expand its lending to electric vehicles and women-led businesses. But these are isolated cases and do not yet represent the development of a market.

Among the main barriers are the costs of designing and validating the instrument, which are often too high for medium-sized companies that lack robust ESG data systems.Reliable data is scarce outside of large companies, and the second-opinion providers (SPOs) needed to validate the relevance and ambition of the established goals are concentrated among a few global firms, which makes the process even more expensive.

That is the gap Uruguay must bridge: local banks, which finance most of the productive sector, are only now taking their first steps toward developing the technical capabilities required to design and monitor these types of operations, and they still face uncertainty when it comes to assessing risk. Support from multilateral organizations—in the form of financing, methodologies, and technical assistance—is key during this learning phase.

Uruguay has shown that it can be a pioneer in sovereign finance. The challenge that remains—on a smaller scale but not necessarily any less complex—is to apply those lessons to the financial system, so that the real economy, too, can be financed according to sustainability criteria. The real milestone was not issuing an innovative bond, but what comes next: building a market that incorporates these instruments in a broad and sustained manner.