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Investing in a green and sustainable way with Green Bonds

If you are a regular reader of BiO3 Consultoria's blog or you are a person/company that is aware of the news both in the agricultural market and in investments in the financial market, already hear about the "Green Bounds". Otherwise, get ready to become!

In a free translation the "Green Bounds" are known as the "Green Titles". Intrinsically based on the ESG model which has the meaning of Envorimental, Social and Governance (Sustainable, Social and Governance in a free translation) that perfectly clarifies the understanding of sustainability in its broad sense, as economically viable, being socially fair and environmentally correct the type of business and investment to be developed by a particular company and/or person.

Consequently, such bonds function like traditional debt bonds., only differing in terms of the destination of the funds raised. Have the character of fixed income, which are used to raise funds to finance sustainable projects exclusively.

These bonds can be issued either by private entities or by governmental. It is not necessary to limit a specific type of asset, these can be diversified.

Mostly, the assets are of medium to long term characteristics, thus attracting institutional investors, insurance companies and asset managers. Stand out mainly, CRA (Agribusiness Receivables Certificate), SHOUT (Certificate of Real Estate Receivables).

In theory, all fixed income market assets and liabilities of being green. As long as it contributes positively to the principles of sustainability and is demonstrably measurable.

The money raised by the "Greens Bounds" is intended for purposes that positively impact the environment and society. What, the renewable energy sectors, low carbon agricultural production, production in the ILPF system, biodiversity conservation and many others.

Certifiers in Green Bonds

The Climate Bonds Certification Scheme is the first and only international scheme to certify green bonds and loans.

Such a scheme defines good market practices related to ambitious climate actions, reporting and data dissemination. How to adopt good internal control practices, tracking, reporting and verifications. Financing only assets compatible with the Paris Climate Agreement goals.

O “Climate Bonds Standard & Certification Scheme”, certifying institution, was released in 2014 and has already certified hundreds of debt instruments, whose total value is equivalent to USD 150 billion (october/2020). being recognized, worldwide, as a good market practice, the scheme has captured approximately, 18% from the market.

O Climate Bonds Standard, details the management and reporting processes. The Standard contains clear requirements for resource usage., selection of projects and assets, resource management and reporting, which are the components of the Green Bond Principles.

This certification brings numerous benefits such as, The brand increases its reputation with the Certification Scheme attracting greater visibility. This greater visibility allows the bond issuer to reach investors who, otherwise, would not be aware of the issue. In addition to fostering greater demand for this type of certified issue. Thus, As certified debt is a relatively smaller subset of the general market, she has a higher demand. Thus establishing an improvement in the reputation of the type gained- win, both lender and borrower.

Basically the adoption of certification is based on seven steps, being:

  1. Inform CBI of your issuance plans. Prepare disclosure documents and the Green Bonds Framework
  2. Hire an approved verifier.
  3. Forward the certification request to the CBI.
  4. pre-issuance certification
  5. Marketing and issuance of bonds
  6. Post-issuance certification
  7. Annual reports

Brazil and the Greens Bounds green titles

With respect and compliance with the Brazilian Forest Code, compliance with the criteria established for certification in green titles in Brazil occurs "automatically" since the Brazilian Forest Code is based on conservation practices for the possibility of agriculture and livestock.

All of this is directly related to the consumption habit of the Brazilian population, which is increasingly demanding in relation to knowledge of the origin of the products consumed.  

Consequently, to enter this promising market, certification is mandatory., by producers and companies related to the production process.

With this certification, by ratifying its obedience to the ESG principles, the producer obtains more predictable and easier rural credit, with a more sustainable credit initiative over time. Adding greater efficiency to production with labor, production cost reduction and many other qualities, due to better management proposed in the system.  

Brazil has a great opportunity to be a leader in the GreenBounds market. Nonetheless, we are still incipient. Data from the year of 2019 show that we were responsible for less than half of the issuance of green bonds worldwide. Underestimating our share in this market.

Therefore, as concrete evidence that Brazil has all the requirements to lead such a market, are the conduct protocols and new production and handling technologies already developed by Embrapa (Brazilian agricultural research company) in low carbon agriculture, ILPF system (Crop Integration, Livestock and Forest) and or Cbio (Renovabio), for carbon credit.

This is original BiO3 content. To learn more about the “Greens Bounds” access here. To access the full text on certification and stay updated on what's new in this market, access here.

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