GREEN FINANCE: Brazil launches framework for sustainable sovereign bonds

The government of Brazil launched today, September 5, 2023, the Brazilian Framework for Sustainable Sovereign Bonds, a reference document for the issuance of sovereign debt securities using funds backed by budgetary expenditures that directly contribute to promoting the sustainable development of the country. The initiative reaffirms Brazil's commitment to sustainable policies, in line with the growing interest of non-resident investors and with the expansion of the market of thematic bond market in the world.

The framework was prepared by the Sovereign Sustainable Finance Committee (CFSS), involving joint efforts of the various Federal Government bodies that comprise it. The development of the framework was also supported by the Inter-American Development Bank (IDB) and the World Bank.

Inter-American Development Bank:  "The issue of the Brazilian Framework for Sustainable Sovereign Bonds marks a significant step in Brazil's national finances and offers a unique opportunity to global investors. This advance makes it possible to raise funds for policies that genuinely promote sustainable and inclusive development," says the representative of the Inter-American Development Bank in Brazil, Morgan Doyle. "The IDB is immensely proud to contribute to the creation of this milestone and remains Brazil's partner in sharing technical expertise and the best evidence."

World Bank: "We congratulate the Brazilian government on this framework for sustainable bonds, which demonstrates Brazil's commitment to addressing environmental and social challenges and will allow the government to diversify its investor base and optimize its financing strategy in a way that matches its needs. As a global leader in sustainable finance and a pioneer in the issuance of green bonds, the World Bank was pleased to work with the government and share its knowledge and experience," said the Director for Brazil of the World Bank, Johannes Zutt.

The document follows the best international practices and was certified by an external verifier (Second Party Opinion Provider – SPO), a procedure that guarantees the convergence of the framework with the principles established by the International Association of Capital Markets (ICMA).

The framework for sustainable sovereign bonds contains the rules that Brazil sets for itself to issue sustainable debt bonds, which are instruments that will allow the country to raise funds associated with financing budget programs that generate positive environmental and/or social impacts. By issuing this type of bond, the country seeks to promote the transition to a greener, more inclusive and equitable economy.

The document establishes the obligations that Brazil must fulfill as issuer or borrower of any sustainable sovereign bond, such as transparency in the definition and selection of expenses to be financed and in the allocation of funds raised with sustainable bonds and disclosure of qualitative and quantitative indicators, when available, measuring the environmental and/or social impacts of these expenses.

In addition to the potential to diversify the base of public debt investors, the launch of the framework also represents the first step towards creating a reference in the foreign market for the Brazilian private sector, stimulating new issuances in the corporate sector with effects on the entire agenda of sustainability in Brazil and worldwide.

For September, between the 11th and 15th, a series of National Treasury meetings abroad are scheduled with global investors to present and clarify the framework for sustainable emissions in Brazil.

Structure

The Brazilian Framework for Sustainable Sovereign Bonds is divided into seven sections, which include, among other topics, the main concepts used in the document and the presentation of a summarized overview of the country's public policies, including the commitments and current state of Brazil in the environmental agenda, social and governance, as well as its sustainable finance agenda.

The document lists eligible expenses within the scope of issuing sustainable bonds and the categories of activities associated with environmental and social benefits. Among the initiatives with the green label, the environmental preservation of native biomes stands out, including the control of deforestation in the Amazon and Cerrado, promotion of the Climate Fund, production of renewable energy, energy efficiency and sustainable management of natural resources.

Also defined in the framework is the evaluation and selection process of expenses eligible for financing through sustainable bonds, in order to guarantee that the funds raised are directed to eligible expenses with high impact; the procedures for managing the funds raised; and the parameters adopted for monitoring, measuring and publishing reports on the allocation and impact of funds raised, as well as the possibilities for external verification.

Sovereign Sustainable Finance Committee

The Brazilian Framework for Sustainable Sovereign Bonds was prepared by the Sovereign Sustainable Finance Committee (CFSS), a permanent collegiate body created by Decree No. 11.532/2023. The collegiate body is an important part of the governance structure in the process of these emissions, as it is responsible for monitoring the execution of resources and providing transparency to the impacts of selected projects.

The establishment of the Sovereign Sustainable Finance Committee is in line with good international practices. In the governance structure of countries that already have a thematic emissions strategy, it is common to define an inter-ministerial collegiate to develop the framework, evaluate projects and select budget actions eligible for their respective frameworks. It is necessary due to the importance of maintaining a constant flow of information between the sector bodies involved in sustainable projects and the bond issuer.

The CFSS is chaired by the National Treasury Secretariat of the Ministry of Finance and is composed of representatives from the following bodies: Ministry of Agriculture and Livestock; Ministry of Science, Technology and Innovation; Ministry of Agrarian Development and Family Agriculture; Ministry of Development and Social Assistance, Family and Fight against Hunger; Ministry of Development, Industry, Commerce and Services; Economic Policy Secretariat of the Ministry of Finance; Ministry of Integration and Regional Development; Ministry of Environment and Climate Change; Ministry of Mines and Energy; and Federal Budget Secretariat of the Ministry of Planning and Budget.