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Investors urge Brazil to use green bonds to save Amazon

In Brazil, the debate about environmental protection is increasingly dependent on one factor: money. Its lack is caused by the Brazilian government when it demands billions of Western nations to stop the destruction of the Amazon rainforest, or when it justifies budget cuts at its environmental protection agencies.

However, for a cohort of investors in Latin America’s largest country, there remain undeveloped options that can meet Brazil’s capital demand while strengthening green credit. They say the Brazilian government should issue sovereign green bonds.

“Hopefully they’ll run into a money wall. If you’re in charge of funding Brazil, you’re probably the first to do it,” said Nordea Asset Management, which manages € 250 billion in assets. Emerging Markets Debt Officer The de Rüst said.

“Connecting some or all of the use of green bond earnings to outcomes would be a very positive step from Brazil. [reducing deforestation].. This will be a very positive step not only for ESG-sensitive investors like us, but also from a Brazilian funding perspective. “

Last year’s deforestation of the Amazon rainforest surged to its highest level in more than a decade, causing global protests from environmentally friendly investors, businesses and nations. Rainforests are considered an important buffer against climate change.

Under pressure, the Jail Bolsonaro administration has sought financial support through schemes such as “adopting parks” that businesses and institutional investors can pay to protect Brazilian forest masses. However, investors were almost deaf in the petition, saying that such a plan was similar to philanthropy and did not fulfill fiduciary duty.

Instead, it points to green bonds, which are gaining in popularity among countries and businesses. Last year, Italy and Germany issued debut green bonds, while Chile has issued more than $ 12 billion in ESG-linked bonds so far.

According to rating agency Moody’s, green bonds, whose revenues are allocated for specific purposes that are considered to have social or environmental impact, are the largest segment of the growing ESG market this year. Expected to sell between $ 258 billion and $ 375 billion. According to data from the Climate Bonds Initiative, Brazil has seen a surge in green bond issuance by businesses and the China Development Bank, with sales of $ 8 billion since 2015.

“It’s published one after another,” said Caroline Prolo, environmental lawyer at Stocche Forbes Advogados in São Paulo.

Brazil’s initiative on sovereign green bonds is “welcome,” said Satyan Gasparotto, head of Latin America for the Climate Bond Initiative.

“”[It would be] An important signal to the market on long-term commitment to a low-carbon, resilient economy [and] There is certainly a great desire for strong green sovereign debt in the market today. ”

Jean-Eric Saugestad, Chief Executive Officer of the asset management company Store Brand, said:

But he said Brazil’s main “investment in renewable energy was already made decades ago and the current government budget is not allocated to green investment spending, so it is not necessary or benchmark-sized. Raise funds to suit global bond issuance. “

Brazil’s sovereign green bonds also face regulatory barriers. In particular, a parliamentary resolution almost 20 years ago that prevented the state from allocating funds to projects when issuing sovereign debt.

“Unfortunately, Brazil’s regulations are limited and now it is stipulated that all proceeds from sovereign issuance must go into the public debt budget. They have to go to one pool of funds. No. Brazil needs to overcome its regulatory barriers before it can issue labeled bonds, “says Gasparott.

She added that it would not be impossible to make such a change if the government regarded it as a priority. However, the Brazilian parliament is notorious for its slow movement, and legislative changes often take years.

Environment Minister Ricardo Salles told the Financial Times that green bonds are “what Brazil can do.” We have all the conditions. However, no one has emerged as an advocate of Brasilia’s cause. Responsibility for this subject is divided into several ministries and the Treasury.

Brazil’s CEO is also credible given that former right-wing Army captain Jair Bolsonaro is clearly indifferent to protecting the Amazon rainforest and curbing climate change. Warned that he would face the problem of.

“If we take the necessary steps to mitigate illegal deforestation, we can increase reliability. We can issue not only green bonds but also sustainability-linked bonds,” he said. Mentioned bonds with specific goals.

“Of course they were able to do that [now] It’s just for marketing, but it doesn’t have a green effect, “he said, noting that borrowing costs have fallen as a result of the surge in investor demand for sustainable assets.

But Nordea’s Rüst is more bullish, saying, “Because the demand for such bonds is very likely to be very high, the coupons Brazil has to pay are probably lower than traditional bonds.” did.

However, he warned that such bonds should be long-term in order to be isolated from Brasilia’s enthusiastic political environment.

“This is a better way for the Brazilian government to get capital for preservation and indirectly demand cash in advance by reducing coupon payments. All they need to do is It’s just about completing the framework. “

Investors urge Brazil to use green bonds to save Amazon

Source link Investors urge Brazil to use green bonds to save Amazon

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