Brazilian companies already raised over US$ 10 billion through Green Bonds and Loans, ranking the country as the largest market in Latin America, according to a Climate Bonds Initiative report.
Green Bonds are fixed income securities used by companies to raise funds aiming to develop projects or assets (or refinance existing ones) that have a positive impact on the environment or climate.
Green Loans are credit lines borrowed by companies before financial institutions, funds, and investors for the same purpose.
Due to its potential in agribusiness, renewable energy and infrastructure, Brazil may become one of the largest global green markets.
Understand below 5 key points in the process of raising funds via Green Bonds and Loans in the Brazilian market:
1. Who Can Fundraise via Green Bonds and Green Loans: any company, including agribusiness organizations, cooperatives, suppliers, trading companies, distributors, energy and infrastructure companies, financial institutions, among others.
2. Which Projects May Be Financed: examples are sustainable agriculture and livestock projects, renewable energy and energy efficiency, infrastructure, clean transportation, treatment of water resources, development of efficient products and processes.
3. What Financial Instruments Are Used: in the case of Green Bonds, fundraising in the Brazilian market has been carried out in the last 5 years through (i) issuance of Agribusiness Receivables Certificate (CRAs), (ii) Real Estate Receivables Certificate (CRIs), (iii) Debentures, (iv) Infrastructure Debentures, (v) Receivables Investment Funds (FIDCs), and (vi) Promissory Notes.
The Brazilian law governed Green Instruments above are aimed at capital market investors, whether qualified or retail, depending on the characteristics and size of the funding.
In the case of Green Loans, the funds are raised through credit lines borrowed before financial institutions, funds and investors.
4. What Are the Benefits for the Issuer of Green Bonds/Loans: we highlight 2 main advantages: (i) diversification and expansion of the financing base, through new investors, such as sustainable funds, and investors who buy Green Bonds or grant Green Loans, and (ii) reputational gains, with the recognition that the issuer is committed to the conservation of the environment and the mitigation and prevention of risks caused by climate change.
5. What are the Stages of the Issuance Process: (i) Structuring: issuer/borrower identifies potential project that meets the requirements of the sectoral criterion for structuring the Green Bonds or Loans, and, in the case of the bonds, contract an institution that will coordinate the issuance to define the amount to be raised, terms and conditions of the transaction, which investors will be targeted, and if there will be interested investors; (ii) Verification: the issuer/borrower must hire an third party independent company (Verifier) to carry out a report confirming that the project meets the requirements for being considered “green”; (iii) Issuance of Green Certificate: the issuer/borrower will submit the Verifier’s report to an international certification company, such as the Climate Bonds Initiative, which will issue a pre-issuance Certificate of the Green Bonds/Loans; (iv) Issuance of the Green Bond/Loan: the issuer issues the Green Bond (s) for acquisition by the target investors, and the borrower enters into the green loan agreement; and (v) Post-Issuance Compliance: issuer/borrower shall prepare and make available an annual report on the evolution of the project and compliance with the criteria.
Due to the potential of agribusiness, renewable energies and infrastructure, Brazil will be one of the leaders in Green Bonds and Loans in the coming years, as more issuers and investors become aware of this funding option, the environmental and reputational benefits.