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Sustainable forest management and wind power dominate use of proceeds. New State of the Market Report predicts growth in the low-carbon agriculture and transportation sector.
São Paulo, October 2nd 2017 – The Brazilian labelled green bonds market has now reached $3.67bn thanks to national companies – the latest results in the second edition of the Brazil State of the Market Report. From June 2015, (when BRF inaugurated the market) to September 2017, 9 Brazilian green bonds were issued, five of them in the international market.
The Global State of the Market report is the flagship report published every year by the Climate Bonds Initiative, commissioned by HSBC. The Brazilian chapter has been written in partnership with the Brazil’s sustainable finance expert SITAWI and the Inter-American Development Bank. The market report will be launched in Brazil on October 4th accompanied by a live webcast at the São Paulo headquarters of Mattos Filho Advogados.
The report finds that Brazilian bond issuance in Q1 and Q2 2017 reached a total of $288.4bn, with green bonds accounting for 0.2% (in comparison to the global bond market, green bonds made up 4% of issuance in the same period). A deep analysis of the market also outlines the investment directions needed to finance Brazil’s low carbon growth in agriculture, forestry, renewable energy and the development of its urban transport sector and other climate smart infrastructure projects.
Green bonds were created to fund projects and assets that have positive environmental and/or climate benefits. Although there is no specific regulation, issuers are expected to obtain international certification or contract an independent assessment of the green credentials of the assets to gain credibility with investors. In Brazil, for example, the 4 domestic bonds were assessed by SITAWI and 3 of these were also certified under the International Climate Bonds Standard.
Brazil State of the Market also finds domestic green bonds are financing a diverse range of segments with clean energy projects accounting for the highest proportion at 42%. Agriculture and Forestry projects, the second highest at 24%, followed by Water at 13%, Buildings & Industry at 9% with Waste & Pollution Prevention at 8%. Transport & Climate Adaptation make up just 2% each, an indicator of the significant headroom for investment in these areas.
The most notable development is the level of heightened demand for Brazil green investment products by international investors highlighted in the response to recent green bonds issued by Klabin ($500M) and BNDES ($1bn), where both were well oversubscribed and priced below estimate. This and other similar results are an indication that interest in green securities is strong and recent market development initiatives in Brazil have contributed to improved investor and market understanding of green bonds and their benefits.
Among the other findings of the report is evidence that there is a real opportunity to finance the expansion of low-carbon agriculture at scale, to increase the diversification of renewable energy sources and to develop resilient infrastructure to meet a new economic standard in the country.
Justine Leigh-Bell, Director of Market Development for the Climate Bonds Initiative: “Brazil has an extraordinary opportunity to be the global engine of low-carbon agriculture and sustainable growth. To meet this goal, banks, corporations and governments must work in partnership, on policy and market directions, in developing green finance opportunities and exploring new sources of investment.”
Gustavo Pimentel, Managing Director of SITAWI: “The Brazilian green bond market should now grow and diversify into sectors. Wind power and sustainable forest management were the low-hanging fruit. We look forward to see issuance for infrastructure, banks and agribusiness.”
Juan Ketterer, Chief, Connectivity, Finance and Markets, Inter-American Development Bank: “To leverage private investments needed to bridge infrastructure and productivity gaps in Brazil it is key to further support the development of financial and capital markets and to attract national and international institutional and impact investors in low-carbon investments and investments with high positive social impacts”.