Report Launch: Analysis of the Sustainable Agriculture Financing Market in Brazil
The Brazilian green bond market hits $9 billion: the agriculture sector has the country's highest issuance potential.
The Climate Bonds Initiative released last Tuesday, 29, the report Analysis of the Sustainable Agriculture Financing Market in Brazil, an analysis of how labeled bonds are currently used to finance sustainable agriculture projects, assets and activities in the country.
According to the study, green bonds account for 84% of the Brazilian sustainable debt market, with a cumulative total of US$9 billion issued by February 2021. Sustainable bonds follow with US$1.6 billion representing 15% of the total volume. And finally, corporate bonds with $111 million, equivalent to 1% of the market.
According to the report, renewable energy and land use continue to be the two most financed categories in Brazil, with 45% and 27%, respectively, of the green issuances volume. The themes covered by the Climate Bonds Standard's 'Land Use' category that have seen issuances in Brazil in recent years are Forestry, Bioenergy, Agriculture, Livestock, Food Industry and Financial Institutions.
Financing the Brazilian Agriculture
Since 2015, companies in the agriculture sector have issued $4.4bn in green bonds. If we consider the sustainable label, this figure increases to US$5.1bn. Going beyond resource allocation labels, those linked to sustainability and transition, we have another US$4 billion issued by companies linked to agro (agriculture, forests and bioenergy).
Featured in the study, agriculture companies issued five green bonds totaling $848 million. According to the investment plan "Unlocking the Potential of Green Investments for Agriculture in Brazil", launched in September 2020, the investment potential for Agriculture in Brazil reaches 163 billion dollars (692 billion reais) by 2030.
Leisa Souza, Head of LATAM, Climate Bonds Initiative
“The Brazilian sustainable bond market has expanded considerably in recent years and we believe that the Agriculture sector has an enormous potential to position Brazil as a leader in labeled issues. We know that the country has the scale to meet the growing demand from national and international investors. We are also working on the development of a Transition Framework for agriculture and livestock. By defining a transition route, Brazil can further expand its pipeline of agriculture-related projects.”
José Ângelo Mazzilo Júnior, Deputy Assistant Secretary for Agricultural Policy, MAPA
"The data recently released by the Climate Bonds Initiative show that our sustainable agribusiness started off on the right foot. I believe the Brazilian agri sector will grow exponentially, especially if we consider incentive programmes like Fiagro and the commitment shown by Brazilian farmers"
Looking to the Future: Recommendations to Encourage the Scale-Up Growth of Sustainable Agriculture in Brazil
The pipeline of green bonds and loans is expanding. In addition to the number of transactions, recent developments regarding local policies also sent a positive signal to the market about the role of sustainable finance. Some measures that can help expand the scale of the Brazilian market for sustainable bonds in these sectors are:
1. Disclosure of Eligibility Criteria for Sustainable Agriculture: Published in August 2020 by the Climate Bonds Standard, the Agriculture Criteria inform issuers about the requirements that must be considered for labeled issuances, defining good market practices.
2. Clear definitions of transition routes: The Climate Bonds Initiative has developed a Transition Framework and seeks to develop transition routes for different sectors, including agriculture and livestock.
3. Increased Investor Demand for Agricultural Bonds: While there is demand for labeled bonds and loans, it is important to inform about sector-specific opportunities to investors and develop their understanding of eligible projects and assets.
4. Leverage public policies: The recent launch of Fiagro (Investment Funds in Agro-industrial Productive Chains (Fiagro) and the inclusion of green finance in the Sustainability Agenda of the Central Bank of Brazil indicate the importance of sustainable financing for the agricultural sector, given its strong dependence on the banking sector.
5. Prioritization of agriculture in sovereign bonds: The National Treasury of Brazil initiated dialogues on the elaboration of an ESG Framework, and the government signaled its intention to carry out the first issuance labeled in 2021.
The report is available for download here.
‘Till next time,