Green Finance
The reduction of greenhouse gas (GHG) emissions in the magnitude foreseen by the Paris Agreement will require radical changes in corporate practice, strategy and behavior, particularly in sectors of the economy that are CO2 and energy-intensive. These changes will require great investments from the public and private sectors, making the role to be played by the financial sector also crucial.
In addition to financing a resilient and low-carbon economy, this sector has been invited to integrate climate risks in the management of its portfolios and in the analysis of new projects, as well as to assign transparency to its exposure to these risks.
Have you ever heard of the Climate Action in financial institutions initiative?
Launched in 2015 during COP 21, the initiative consists of a coalition of public and private financial institutions to promote the systematic integration of the climate dimension in their performance.
So far, about 38 institutions have joined the initiative, committing themselves to pursue the internalization of the subject, voluntarily and progressively, in their strategies, risk management processes, performance monitoring and accountability to society.
To make climate change a central component in the business operations conducted by the financial institutions, the initiative is driven by five voluntary principles, to which the institutions must publicly confirm their support upon affiliation:
COMMIT to climate strategies: establish explicit strategic priorities and commitments to goals and policies that will enable the integration of the theme in the activities of the institution over time.
MANAGE climate risks: consider the climate dimension in the analysis of their portfolio, pipeline and new investments, considering the associated risks, as well as interact with customers to increase resilience to climate impacts and improve the long-term sustainability of investments.
PROMOTE climate goals: develop instruments, tools and knowledge about the best ways of overcoming risks and promoting resilient and low-carbon investments; mobilize and catalyze additional investments on climate through, for example, the development of specific financial products, such as green bonds, risk sharing mechanisms or combined financing, sharing experiences with customers and other parties (for example, rating agencies) interested on the theme.
IMPROVE climate performance: track and monitor indicators related to climate change, including GHG reports, volumes of loans, assets allocated and the institution’s own carbon footprint.
BE ACCOUNTABLE for their climate activities: be transparent and, whenever possible, report the institution’s climate performance, including increased funding for clean energy, energy efficiency, climate resilience and other climate-related activities and investments.
The initiative offers a database of the best practices in the industry and several publications related to the five principles, with the most recent articles and books launched on the subject. Supporting institutions have the opportunity to access and use this material, as well as to share their experiences in the Climate Mainstreaming Practice Report, with annual periodicity.
The initiative also promotes working groups and discussions between the participating institutions aiming at mutual learning, dissemination of the best practices and collaboration in areas of common interest.
And in Brazil?
Of the Brazilian initiatives that are worth mention, the Financial Innovation Laboratory (LAB), a joint initiative of the Brazilian Association of Development (ABDE) with the Inter-American Development Bank (IDB) and the Securities Commission (CVM), stands out. The goal of the initiative is to encourage social and environmental debates and the creation of innovative mechanisms to promote sustainable development, through the convergence of public and private interests.
Currently, LAB has four working groups focused on the themes:
- Green bonds: deepening of the understanding about the market and development and evaluation of intervention proposals in Brazil.
- Green finance: construction of dialogues with the institutions that make up the National Development System (SNF) to originate, evaluate and test financial innovations that support the sustainable development of Brazil.
- Financial instruments and impact investments: identification of the role that the DFIs and the opportunities to develop the capital market and financial instruments may play in the expansion of the offer of business investments that promote the SDGs;
- Fintech: development of studies and evaluations on the new financial technologies, digital economy and alternative funding trends and mechanisms (impacts, opportunities and challenges); and designing of the proposal of joint action in financial technologies, digital economy and alternative funding mechanisms (governance rules, members, services offered etc.), including studies on the feasibility of implementation of a regulatory sandbox project in the capital, insurance and social security markers.
In addition to this initiative, it is worth mentioning that several Brazilian commercial banks have been developing actions and making progresses in this area.
Learn more about the event on the theme held at BNDES, in partnership with the International Development Finance Club (IDFC) and the Climate Action in Financial Institutions initiative, with the participation of the Brazilian Association of Development (ABDE), Bradesco and Santander, as well as various international development institutions – the French Development Agency (AFD), the Development Bank of Southern Africa (DBSA), the China Development Bank (CDB), Bancoldex Colômbia, the Industrial Development Bank of Turkey (TSKB), the International Investment Bank (IIB), the Japan International Cooperation Agency (Jica), KfW, the Latin American Development Bank (CAF) and Vnesheconombank (VEB).
In the Brazilian financial sector the event aimed to promote, the Climate Action in Financial Institutions initiative, which BNDES joined in December 2017, as well as to enable the sharing of experiences between the institutions present in relation to the incorporation of the climatic dimension in business.