2023-09-06 17:52:00
The Brazilian Government should issue an innovative sustainability-linked bond (SLB) for stop deforestation in the amazon rainforestaccording to researchers from World Bank.
SLBs—where issuers pay higher interest rates if they fail to meet sustainability targets— given to transformation projects, such as initiatives to curb deforestation, according to the research document. In the case of Brazilthe bond should be designed so thatthat the government is not rewarded or penalized for factors beyond its control that impact conservation efforts, such as weather or global commodity prices.
This is the most recent call for Brazil adopts the type of debtalthough the nation is currently focused on other types of ESG (environmental, social and corporate governance) debt where the money raised goes to environmental or social projects.
President Luiz Inácio Lula da Silva has made an effort to prioritize the environment in his Administration, which contrasts with the policies observed under the mandate of former President Jair Bolsonaro.
“Financial incentives in the SLB structure ensure that issuers have ‘something at stake’ as they there is a financial interest in achieving the sustainability performance objective”, said the researchers Dieter Wang, Bryan Gurhy, Marek Hanusch and Philipp Kollenda.
Brazil has a huge influence on the global environment since it houses the largest tropical rainforest in the world. In addition to its great biodiversity, the amazon also contains carbon, which, if released in its entirety, it would be enough to account for 20 years of global emissions at the current rate.
Bonds linked to sustainability have multiplied to exceed US$200 billion in sales in recent yearsalthough governments have been slower than companies to adopt the format. Chile was the first last year, followed by Uruguaywhich proposed to expand the country’s forest area to 2012 levels by 2025.
The Amazon rainforest lost its ability to absorb carbon dioxide
For Brazil, World Bank researchers they presented a more subtle sustainability goal. They propose a framework in which interest would depend on whether or not it exceeds a “no news” Amazon deforestation forecast, which also takes into account factors beyond their control. This is in contrast to the usual SLBs structured around absolute goals.
Bonds of this type are likely are subject to widespread scrutinysince SLBs with very moderate objectives have already attracted criticism, while there are international campaigns to protect the Amazon.
“While sovereign sustainability-linked bonds have been lauded for their potential, concerns regarding greenwashing and corporate market additionality have hampered its uptakethe researchers said. “However, ruling out VMS at this stage would be premature.”
Translated by Barbara Briceño.
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