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World Bank and Banco do Brasil Develop $500 Million Climate Finance Solution

Global Association for ESG

26 Dec 2022

A one-stop-shop will offer Brazilian firms easier options to reduce their carbon footprint

  • The project will adopt, for the first time, a sustainability-linked lending approach to help Brazil meet its climate goals

  • Up to 90 million metric tons of CO2 equivalent emission reductions are expected by 2030

  • Project is also expected to mobilize up to US$1.4 billion in private capital through the scale-up of financing by Banco do Brasil and private investors

A $500 million project to increase sustainability-linked finance and improve the private sector's ability to access carbon credit markets was approved by the World Bank Board of Directors. The project will utilise a sustainability-linked lending strategy for the first time in conjunction with Banco do Brasil, one of the biggest financial institutions in Latin America, to assist Brazil in reaching its climate goals.

The initiative seeks to provide significant benefits for mitigation. By 2030, it is anticipated that emissions will be reduced by up to 90 million tCO2e, or 4.5% of what Brazil needs to achieve its net-zero targets. Through the expansion of finance provided by Banco do Brasil and private investors, the project is also anticipated to raise up to US$1.4 billion in private capital. Banco do Brasil is dedicated to assisting customers, partners, and society in the transition to a low-carbon economy with methodologies, lines of credit, and sustainable solutions. Banco do Brasil is a leader in the Brazilian agribusiness sector, accounting for about 60% of all rural credit in financial markets.

"Brazil has a great chance to lead the world in the shift to a low-carbon economy. In order to achieve this, quick action is needed to combine private finance and solutions with public interventions, according to Johannes Zutt, the World Bank's Country Director for Brazil. "Banco do Brasil is a fantastic partner for the plan we are putting out today. It has a long history of providing funding for Brazilian companies that wish to become more sustainable and innovative."

The Brazil Climate Finance Project uses an original, results-based financing strategy to encourage businesses to adopt and carry out reliable GHG emission reduction strategies in order to lower their overall carbon footprint. Additionally, the project connects these businesses with top-notch carbon markets.

Banco do Brasil will be able to provide its customers with packages that combine finance with assistance in accessing carbon markets through a "one-stop-shop" according to the new initiative. This would give Brazilian businesses, especially small and medium-sized ones, access to a complete end-to-end service, from calculating their carbon footprint to earning money from high-integrity carbon credits.

In order to support businesses committed to lowering their carbon footprint, Banco do Brasil will use the project's $400 million credit line to create sustainability-related loans. An additional component of the project is a US$98 million prototype Climate Debt Fund, which will be used to mobilise private funding and advance sustainability-related finance across the economy.

In addition to these financial tools, Banco do Brasil has received US$2 million in funding to strengthen its technical assistance capabilities and support businesses in adopting reliable mitigation strategies and gaining access to high-quality carbon markets.

"The public and business sectors both play a crucial part in assisting the shift to a greener economy. We welcome the partnership with the World Bank not only because it is the largest global funder of climate action in developing nations, but also because of its proficiency in establishing and bolstering local capital markets as well as in transforming domestic financial sectors to be more environmentally friendly. The project aligns with our aim of boosting company in the ESG space and serving as a sustainability reference. The programme, according to Banco do Brasil President Fausto Ribeiro, "will integrate knowledge and financing in support of a low-carbon economy among our consumers throughout the country."

Through a variety of financial products, financial institutions worldwide and in Brazil are dedicating greater funding to environmental and climate-related initiatives. The initiative tests a novel strategy with high potential for replication at scale in Brazil and elsewhere by mainstreaming mitigation-based funding within a significant financial institution.

By supporting Brazil's efforts to cut GHG emissions and adapt to the effects of climate change, the initiative directly advances the World Bank's current partnership with Brazil, which is focused on equitable and sustainable development. This objective will need the creation of financial tools to cut carbon emissions across all economic sectors.

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