Brazilian companies will be the first to receive financing from the World Bank at a global level. The goal is to reduce their carbon footprint.
The entity’s board of directors approved this Thursday a US$400 million financing line with Banco do Brasil SA for long-term sustainable loans for small and medium-sized companies, according to a press release.
The bank expects to make the first loans in the second half of 2023, said Shireen Mahdi, a project manager at the World Bank.
The project also includes an additional US$98 million to create a climate debt fund that will leverage private capital and focus on larger companies, especially agribusiness. The financing will aim to reduce emissions through supply chains and not just within the company structure itself. Another US$2 million will go towards building the technology needed to help companies access high-quality carbon markets within Banco do Brasil.
“We will adopt high-quality standards for mitigation plans and carbon markets,” said Mahdi, who is the World Bank’s lead economist for Brazil. “A company capable of succeeding will be prepared for export markets and value chains that are becoming greener.”
The lines of credit will be for up to 20 years and are likely to have a reducing coupon, used in green financing so that issuers pay less interest when they meet their targets. Banco do Brasil expects agribusiness to lead the financing requests, although the project is open to all sectors of the economy. The banks are still working on how the targets will be defined, measured and validated.
The project aims to reduce CO2 emissions by up to 4.5% of what Brazil needs to stay on track towards its net zero emissions commitment by 2030. It is expected to mobilize US$1.4 billion in private capital, according to the bank. Its “one-stop-shop” approach, concentrating all the necessary steps within the same banking structure, can give small and medium-sized businesses better access to carbon markets, Mahdi said.
Brazilian companies and banks raised US$20 billion through green or sustainable bonds during 2020-2021, according to recent data from the central bank. The country’s companies account for about 1% of global emissions, the second highest in Latin America after Chile.
The nation’s central bank is also pressuring the financial system to take a green approach to its risk framework, while investors are calling on the government to issue a sustainability-linked bond that would pay interest if the country protects the Amazon rainforest.
With information from Bloomberg