The private investment arm of the Inter-American Development Bank's parent group on Friday announced alongside Colombia's Banco de Bogota the issue of a sustainability bond worth $230 million funding social and climate projects.

Following a presentation at an annual banking meeting in Panama, the private investment arm known as IDB Invest said the bonds will be issued on the international market by Banco de Bogota with a term of up to 10 years.

"The issuance of this type of bond will serve as a basis and example for the development of the capital market for this type of instrument in Latin America and the Caribbean," said IDB Invest's Chief Investment Officer Gema Sacristan in a statement.

Sustainability bonds are a form of debt instrument in which the proceeds are used to finance or re-finance a combination of both green and social projects.

Banco de Bogota will use the funds to finance a portfolio of micro, small and medium-sized enterprises led and owned by women, it added, as well as low-income and priority housing.

The Washington-based Inter-American Development Bank, along with its subsidiaries, is among the top providers of development finance in Latin America.

IDB Invest said the funds generated by the new sustainability bond will also be used to pay for green buildings, renewable energy, energy efficiency projects, circular economy and sustainable agriculture.

The firm said it will subscribe for $80 million, while the International Finance Corporation (IFC) will participate with $75 million, FinDev Canada with $50 million and $25 million from a pair of funds managed by Finance in Motion (FiM).

(Reporting by Sarah Morland; Editing by David Alire Garcia and Grant McCool)