EXCLUSIVE: Brazil looks to green bonds to reduce Amazon deforestation

EXCLUSIVE: Brazil looks to green bonds to reduce Amazon deforestation

Debt Bonds Capital Markets Economy & Policy Fixed Income Funds Project & Infrastructure Finance Brazil Latin America

Brazil's government is backing increased use of green bonds to help combat deforestation in the Amazon, the nation's minister of agriculture told LatinFinance in a recent interview.

"The major problem [behind] Amazon deforestation is the illegality and not agriculture,” Tereza Cristina, Minister of Agriculture, Livestock and Supply said in written answers to questions posed by LatinFinance.

The minister made her comments ahead of Tuesday's release of a report titled: Unlocking Brazil’s Green Investment Potential for Agriculture Roadmap. The report was prepared by the Climate Bonds Initiative and the Brazil Agriculture Subcommitee, a public/private working group of the Brazil Green Finance Initiative. The report seeks to promote existing green-aligned investments for the country's agribusiness sector. 

One of the main goals of the roadmap is to spur the adoption of green financing and promote more environmentally sustainable practices in the agri-business sector. It also aims to increase the number of bankable  projects  for  green  bond  issuance and other environmentally conscious debt instruments. The investment potential in green-aligned financing identified in the roadmap report is $163.3 billion by 2030.

Brazil is under an intense global spotlight because of the burning and clearing of the Amazon rainforest to make way for crops and livestock. 

"Brazil has achieved so much already in sustainable agriculture through the low carbon agricultural plan, it has stringent environmental codes… but it also has existing mechanisms in the capital markets that can be labelled green," said Leisa Sousa, Brazil Agriculture Program Director at the CBI, and a co-author of the report.

"So it's connecting all these pieces and saying we know we already have things that, of course can be improved and leveraged, but that can be labelled as green… and can direct Brazil's investment towards scaling sustainable agriculture," she added.

Green Bond Issuance - LAC Region


Source: Sustainable Agriculture Investment Roadmap


Brazil is currently the second-largest green bond market in Latin America and the Caribbean (LAC) with 30 bonds totaling $5.9 billion or 30.5% of total issuances in the region.

Of these, non- financial  corporates  issued  84%  of  the green debt instruments,  representing  73%  of  the  total  amount  raised, according to the CBI.

Brazilian meatpacker BRF issued the country´s first green bond worth €500 million euros in 2015.

Green bond issuance by agri-business and forestry companies worldwide represented 3% of the estimated $800 billion raised globally via "climate-aligned" debt instruments, the CBI says.

The report highlights how renewable energy is the "most obvious" target for investors. However, it also makes special note of investment opportunities in areas such as climate smart agriculture and  forestry,  energy  efficiency, transportation, and waste.

Minister Cristina told LatinFinance that Brazil has developed a sustainable "tropical agriculture model" that could see increased productivity through better use of existing land. She noted that 66% of the country's territory is still covered with native vegetation.

"Brazil has important legislation, [such as the] Forestry Code, [obliging] all rural proprietors to preserve native vegetation. So, we believe that agriculture will have a great share of this green bonds market to [finance] its activity,” Cristina wrote.

She added that green bonds will help create an "incentive to legality" by making sure farmers occupying land legally have access to these resources.

Brazil's international and domestic climate commitments include pledges to reduce carbon emissions by 37%  by 2025 compared  to  2005  levels  and   achieve  a  43%  reduction  by  2030.  It also pledges to restore 12 million hectares of forest and achieve zero illegal deforestation in the Brazilian Amazon.

Nevertheless, the country is currently witnessing soaring rates of deforestation with an estimated 1,202 square km (464 square miles) cleared in the Amazon during the first four months of the year. That is a 55% increase from the same period last year, according to The Economist magazine.

Andres Salcedo, an independent consultant for the CBI and lead author on the roadmap report, said recent international attention on deforestation in the Amazon overlooks important aspects to Brazil's agriculture sector vis-a-vis the rainforest. 

“That Brazilian agriculture in general is sustainable is a message that is not clear abroad,” he said, adding that it "will help give more clarity on the importance of fighting deforestation in the Amazon.”