Oct 21, 2020

 Green finances and investments focused on socioenvironmental sustainability and corporate governance (ESG, from the English words environment, social and governance) provide a range of opportunities for Brazil. The evaluation was made by the participants of the two panels presented on Tuesday during the second day of webinars of the Green BNDES Week.

The director of Finance of the Brazilian Development Bank (BNDES), Bianca Nasser, who coordinated the panel “Funding through ESG financial mechanisms,” pointed out that more than 50% of the credit portfolio of the institution is already dedicated to green and social assets. “We hope to expand that participation even further,” he said. “Our current business plan is completely tied to ESG goals.” 

For Blue Orange Capital CEO Bertrand Badré, BNDES plays a central role in this trend. “There is a huge spectrum of opportunities in Brazil in water, energy and, of course, in the Amazon,” he noted.

Badré recalled that 50 years ago, economist Milton Friedman saw profit maximization as the social purpose of companies. “We have changed from this view in which profit is an end in itself to a system in which you profit because you find solutions for the planet,” he pondered. “This goes through operational changes and market education: what do clients, investors and workers expect? Are we ready to change for real or we do not care?”

Change of focus – The Managing Director of the Emerging Markets Investors Alliance, Nadine Cavusoglu, highlighted that the institution's mission is first to educate investors and then to have them as the voice of change and engagement of companies to promote more sustainable practices. According to her, companies that resist the incorporation of ESG principles in all respects are rare.

“For us, the first step is to reach the company and start the dialogue,” she said. “A very important step is to understand why the company is resisting change, because without understanding this we cannot come up with an engagement plan,” she added. 

BTG Pactual’s head of Variable Income for Latin America, Will Landers, highlighted Brazil's leadership in governance since the launch of the New Market in the early 2000s. However, he pointed out that we are learning, “like everyone else,” to use ESG as a tool for investment. “We don't yet have a standard for judging whether companies are good or bad with respect to ESG,” he stated.

According to Landers, the global investment in exchange traded funds (ETF) related to ESG principles reaches US$ 100 billion. Sustainable investments account for almost a third of global investment, he added.

Environmental Agenda – As highlighted by the superintendent of the Public and Socioenvironmental Management Division of BNDES, Júlio Leite, mediator of the panel on Green Finance, the Bank is one of the institutions that have contributed the most to the Brazilian environmental agenda in the last 30 years. “Sustainability is under strategic planning, it is transversal to all thematic areas of the institution and concerns all its operational activities,” he stressed.

BNDES was the first bank to have a unit dedicated to socioenvironmental issues and the first to have a policy of socio-environmental responsibility before the Central Bank of Brazil required it from financial institutions. It was also the first to issue a “green bond”, worth US$ 1 billion in 2017, backed by renewable energy projects – solar and wind. The supporting bank manages the Amazon Fund and the Climate Fund, with resources from oil royalties from the Ministry of the Environment, for reimbursable support to projects that reduce greenhouse gas emissions.

According to the superintendent, the green finances market grows year after year. “It is already a market of nearly US$ 1 trillion of emissions over the past 10 years and serves to mobilize investments to transition to a low-carbon economy,” he said.

Opportunities for Brazil – The Green Economy Coordinator of the Ministry of Economy, Gustavo Fontenele, sees great opportunities for the country. “We must use green finance as a springboard to appropriate this environmental power, these attributes of sustainability, and convert them into competitive advantages,” he proposed.

For Fontenele, our public financing capacity is increasingly limited, which allows good prospects for market players. “We see green finances as a great tool to enable projects, to promote development, equity and prosperity in our society and to raise our competitiveness standards,” he said.

The coordinator of Laboratório de Inovação Financeira da Comissão de Valores Mobiliários (LAB-CVM), José Alexandre Vasco, compared the views of capital markets in developed and emerging countries on sustainable finance. “Developed markets see it as particularly related to climate: how the financial system can and should help and contribute to deal with the challenges of climate change. For us, it is a matter of market development opportunity: these large investments will translate into more infrastructure,” he said.

According to Vasco, there is an estimated US$ 2.5 trillion required by emerging countries to invest in infrastructure per year until 2030 to achieve the Sustainable Development Goals. In the case of Brazil, this need is of only US$ 1.3 trillion. “We have transport and sanitation needs: about 30 million Brazilians do not have access to treated water,” he recalled.

The vice president of the Climate Bonds Initiative (CBI), Justine Leigh-Bell, said that the Brazilian green finance initiative, led by investors, engages a potential sequence of investments in infrastructure, including energy and agriculture in Brazil. “The appetite for socio-environmental sustainability becomes increasingly important for investors – even more so in times of pandemic, because Covid-19 has taught the world that we are not able to respond well to shocks,” Justine noted. “We find ourselves at a great disadvantage: if we can't solve a pandemic, how can we solve a climate change?”