The Green Appeal

By Andrea Vialli

As a proposal which sparks the eyes of investors concerned about social and environmental issues, the green bonds were responsible for raising about US$ 81 billion worldwide last year. This amount is much higher than in 2015 when it added up to US$ 42 billion, according to statistics from the Climate Bonds Initiative (CBI), an international non-profit organization dedicated to fostering green bonds and climate securities markets. The vocation of debt securities is in line with what its name suggests: the financing of sustainable projects. Nonetheless, Brazil contributed little to this exuberant growth. Fibria, Suzano and BRF were the only national companies to pocket resources through green bonds so far. The pioneer was the food company BRF, which in May 2015 raised € 500 million in Europe. Then it was Suzano’s turn to do two fundraising. The first occurred in July 2016, when it raised US$ 500 million in a foreign issue. In November 2015, the second funding represented the first one directed to the Brazilian market. It involved the offer of R$ 1 billion in agribusiness receivables certificates (CRA) backed by an Export Credit Note (NCE) issued by the company. Fibria, meanwhile, raised US$ 700 million on the international market in January this year.

 With maturity in eight years, Suzano’s latest funding of green bonds drew attention for exploring the potential of this bond in Brazil. The offer establishes the payment of a semiannual interest equivalent to 96% of the CDI . The resources obtained by the company with the offers can be used for investments in several areas, such as forest management, restoration of native forests, maintenance or development of environmental preservation areas and energy efficiency.

 “Brazil is behind on this type of issue. But the offer of green bonds is a global trend that will take shape,” explains Marcelo Bacci, financial and investor relations director at Suzano. For companies, offering green bonds is an efficient way to improve reputation, and access the pocket of a specific type of investor – one who values the adoption of good environmental, social and governance (ESG) practices.

 Especially in Europe, there are investment funds that are totally dedicated to this concept, and the big asset managers also create products with such clothing.

“Brazil is behind on this type of issue. But the offer of green bonds is a global trend that will take shape”

A clear demonstration of investor interest in green bonds occurred in 2015, during the UN climate conference COP21, in Paris. At the time, 27 institutional investors with US$ 11.2 trillion of funds under management signed a document pledging to support the green securities market. In October 2016, Brazilian capital market agents joined the cause – among the signatories were BTG Pactual, BB DTVM, Itaú Asset Management, Santander Asset Management, SulAmérica Investimentos and UBS Brasil, which together are responsible for the management of R$ 1.61 trillion. “Issuance from Brazilian companies have shown that there is a high demand for these bonds. Capital begins to move towards the green side”, observes Tatiana Assali, from the Latin American office of the Principles for Responsible Investments (PRI), a UN initiative that seeks to encourage the financial sector to adopt socio-environmental standards in its operations. To have an idea, the first issue of green bonds Suzano demanded three times that was offered.

 The diversification of the investor base with ESG funds was one of the reasons that encouraged BRF to offer green bonds. The company’s chief financial officer, Elcio Ito, says the money raised will be used in several projects within the group’s companies, such as exchange of equipment to improve energy efficiency, reuse of water and use of biomass for renewable energy generation. “The issuance of green bonds in the European currency opened a new flank of visibility for the company. With the offer, we wanted to attract ESG investors, who increasingly gain strength in the capital market, “comments Ito.

 In order to preserve the integrity of the green bonds market, 50 financial institutions participating in the International Capital Market Association (ICMA) have developed a set of principles of voluntary adoption to issue a “trustworthy” green bonds. The principles, gathered in a document “Green Bonds Principles” (GBP), address the use and management of funds raised, the process of evaluating and selecting projects to be financed and accountability to investors. According to the GBP, green issuers should produce annual reports on the performance of their key environmental indicators and on the allocation of financial resources to projects. It is also recommended that companies submit their issues to the scrutiny of external evaluators or certifiers – who can attest that a green bonds offering is in line with the GBP guidelines. An example of an external appraiser is the Canadian consultancy Sustainalytics, a pioneer in this market and responsible for the statement of the BRF and Suzano green bonds in their first offer. In Brazil, Sitawi Finance for Good also plays this role, and signed the statement of the second funding of Suzano. Such evaluation is important because it reduces the cost of environmental due diligence of investors. In addition, it attracts non-specialist appliers who have little or no experience with environmental project analysis. Another advantage is the evaluation of the eligibility of the paper for listing in the segments dedicated to green bonds of some stock exchanges or for inclusion in green bonds indices (particularly relevant in the case of international issues).


Although green bonds is new to Brazilian companies, its offering has been around the world since 2007. The first issues were made by the European Investment Bank and the World Bank. In these ten years the green bonds have gained popularity – have already registered offers in about 25 different currencies. “We see large bond issues in China, India and Latin America, as well as in the United States and Europe, markets where green bonds are more consolidated,” says Justine LeighBell, CBI’s director of market development. Bank of America Merrill Lynch estimates that green bonds issues from China totaled about US$ 17.5 billion last year. In Brazil, the sum of all issues reaches only US$ 3 billion. “Institutional investors in developed markets are discovering the potential for low carbon investment in emerging countries,” says LeighBell.

 Governments have also used the green bonds market. According to a report by the Bloomberg news agency, weeks after Poland offered its first sovereigns green bonds (valued at € 750 million) in December, France was preparing for a roadshow of its green bonds – as reported by government officials’ projections the offer could raise at least € 2.5 billion. Nigeria would also be in line for the launch of green bonds. According to LeighBell of the CBI, the offer of green bonds could help Brazil heals it historical deficits in sectors such as sanitation and infrastructure and finance the transition to a low-carbon economy. It should be remembered that the country is one of the nations that have ratified the Paris Agreement, a global commitment to reduce climate change approved by approximately 190 countries. Among the undertaken commitments are the recovery of 12 million hectares of forests and 15 million hectares of degraded pastures, as well as an increase in the share of renewable energy (solar, wind and biomass) from 10% to 23% in the National energy matrix by 2030. In order to achieve these goals, Brazil will have to make investments of US$ 152 billion between 2015 and 2030 – and with the depleted government cash, the solution may be to attract private capital through the offer of green bonds.

 “Building energy sources beyond hydroelectric power, investing in water and sewage treatment, and efficient public transport systems in cities are places where Brazil can benefit from green bonds,” says LeighBell.

 The offer of green bonds can help Brazil to heal it historic deficits in sectors such as sanitation and infrastructure, and finance the transition to a low-carbon economy.

 In an attempt to stimulate this market in Brazil, the Brazilian Federation of Banks (Febraban) and the Brazilian Business Council on Sustainable Development (CEBDS) launched, in October, a guide for issuing green bonds. The CBI is also determined to encourage new offers. Last December, they led Brazilian companies to a roadshow with investors on the London Stock Exchange. The event brought together green bonds issuers such as Suzano and others who look at this market with interest, such as Klabin, CPFL Energia and the EcoAgro securitization. Also participating were banks, such as the Brazilian Development Bank (BNDES), and class entities like FSC Brazil, which represents the Forest Stewardship Council, a non-governmental organization that issues the main certification of forest management in the world.

 Present in several products of forest origin (from paper to wood for construction), the FSC seal is granted after an in-depth evaluation of social, environmental and economic criteria. “The certification standards can be used as a validation tool for green titles for forest-based companies,” said Aline Tristão, executive director of FSC Brazil.

 Although the market engagement in encouraging the issuance of green bonds is admirable, it runs into practical hurdles. It can reduce the lack of knowledge – many companies issue paper to finance sustainable projects without knowing they could frame them as green bonds – but it does not solve problems that inhibit the development of the private bonds segment in general, such as high interest rate and the lack of a secondary market. “What is now a hurdle for the capital market is a hurdle to the progress of green bonds,” notes Gustavo Pimentel, director of SITAWI Finance for Good. Green bonds face the same difficulties as other bonds, but they have an advantage: they answer to the yearnings of investors who manage a hefty cash. Until April 2016, the assets under management of the signatories of the PRI totaled an impressive R$ 62 trillion.

This news was originally published on the “Capital Aberto” website.