Contributions can be made on the BCB website until Friday April 23rd
The Banco Central do Brasil (BCB) has opened a public consultation on two draft regulations that define sustainability criteria to be applied to rural credit operations.
The Consultation will be active until Friday April 23rd and aims at enabling a public debate and the broad participation of citizens and entities interested in the subject. The Notice can be accessed here, and the content posted by contributors can be accessed here (only in Portuguese).
What you should know about the public consultation
The proposal allows rural financing to be classified into three categories:
- Projects that may not be financed with rural credit due to the existence of regulatory provisions regarding overlap with indigenous areas, illegally deforested areas in the Amazon Biome, or administrative sanctions for slave-like work conditions.
- Projects that can be financed with rural credit with an indication, from the BCB, of social or environmental risks to the financial institution. Therefore, these projects shall not be classified as sustainable rural credit operations. In such cases, the financial institution shall check whether the operation is in accordance with rural credit regulations before proceeding with the credit granting process. For instance, embargoed areas or borrowers sanctioned for child labor are placed under this category.
- Projects financed with rural credit that may be qualified as sustainable rural credit operations if they comply with social and environmental sustainability parameters — such as a low-carbon agriculture, the existence of grants for water usage, or the employment of renewable energy generated at the property.
These criteria will integrate the BCB's Rural Credit and Proagro Operations System (Sicor) and will contribute to the improvement of the financial institutions' assessment processes for social and environmental risk.
According to the Brazilian Central Bank, in order to allow the issuance of green bonds, third party verifiers may also use the information on the rural credit operations, as well as the rating agencies specialized in Environmental, Social, and Governance (ESG) Criteria, and service providers contracted to audit the adherence of projects to social and environmental requirements. Furthermore, policy makers might also use the information to grant additional incentives for sustainable rural projects.
Sean Kidney, CEO, Climate Bonds Initiative:
“Central Banks have a prominent role in greening the financial system. The Brazilian Central Bank’s (BCB) public consultation on sustainability criteria for rural credit transactions is groundbreaking. It brings environmental and social elements into the decision-making process and sends a signal to investors looking for a green label on the credentials met. The Climate Bonds Initiative is excited to have supported this effort under our Memorandum of Understanding and looks forward on how this will be taken forward.
The last word
In September 2020, The Central Bank of Brazil (Banco Central do Brasil) and Climate Bonds Initiative signed a Memorandum of Understanding (MoU) with the objective of promoting a sustainable finance agenda and the integration of socio-environmental and climatic risks in the national financial sector.
The MoU builds cooperation between both organisations and is aimed at promoting the exchange of experiences and best practices regarding sustainable finance instruments and mechanisms, such as the incorporation of international criteria and taxonomies into the systems used by the Central Bank.
There’s much more to come on the sustainable agriculture front in Brazil. This move by Banco Central is adding to the momentum.
Till next time
Climate Bonds
