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Green Infrastructure Investment Opportunities BRAZIL 2019

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Green Infrastructure Investment Opportunities BRAZIL 2019 Green Infrastructure Investment Opportunities BRAZIL 2019 Report prepared by Regulatory chapter written in partnership In partnership with Climate Bonds Initiative with Pinheiro Neto Advogados Inter-American Development Bank Green Infrastructure Investment Table of contents Opportunities, Brazil 2019 3 Green infrastructure: an opportunity for growth This report highlights green GIIO Report Series 6 Green finance trends, opportunities infrastructure investment and challenges opportunities in Brazil Green infrastructure presents a huge investment opportunity globally, with an 10 Legal and regulatory interventions This report has been prepared to help meet estimated USD100tn worth of climate 11 Green infrastructure investment the growing demand for green investment compatible infrastructure required between opportunities opportunities – including green bonds - as now and 2030 in order to meet Paris well as to support the country’s transition to Agreement emissions reduction targets. 14 • Low carbon transport a low carbon economy. However, there remains a lack of identifiable, 16 • Renewable energy investment-ready and bankable projects. There 18 • Sustainable water management It aims to facilitate greater engagement on this is also a lack of understanding of what types of 20 • Sustainable waste management topic between project owners and developers, assets and projects qualify for green financing. and institutional investors. Green infrastructure 22 Measures for growing green and corresponding green finance instruments In response to this challenge, CBI is developing infrastructure are explored in the report, with sector-by- a series of reports that aim to identify and 23 Annexes sector investment options presented. demonstrate green infrastructure investment opportunities around the world. By so doing, 23 • Annex I: Green Debt Instruments The report is intended for a wide range it aims to raise awareness of what is green applicable in Brazil of stakeholders in Brazil, including domestic and where to invest, and to promote green 25 • Annex II: Green Equity superannuation funds and asset managers bond issuance as a tool to finance green Instruments applicable in Brazil and their global counterparts, potential infrastructure. 26 • Annex III: Risk Transfer issuers, infrastructure owners and developers, Instruments applicable in Brazil as well as relevant government ministries. The series commenced with the Green 27 • Annex IV: Green Financing Infrastructure Investment Opportunities In developing this report, the Climate Bonds Platforms/Initiatives in Brazil (GIIO) Indonesia report, launched in May Initiative (CBI) consulted with key government 28 • Annex V: Green Standards 2018, followed by the Australia and New bodies, industry, the financial sector, and applicable in Brazil Zealand GIIO report, released in August infrastructure companies – in partnership with 29 • Annex VI: Green Pipeline 2018, and, most recently, the Australia GIIO the Inter-American Development Bank (IDB). Analysis 2019 report. The pipeline of GIIO reports We would like to thank our partner, along with being developed includes further exploration 31 Endnotes Pinheiro Neto Advogados, who contributed of opportunities in Asia-Pacific as well as the ‘Legal and regulatory interventions’ opportunities in Latin America. section to the report. GREEN Green Infrastructure Green Infrastructure Green Infrastructure Investment Opportunities Investment Opportunities Investment Opportunities AUSTRALIA 2019 INFRASTRUCTURE AUSTRALIA & NEW ZEALAND INDONESIA INVESTMENT UPDATE REPORT OPPORTUNITIES INDONESIA Published by the Climate Bonds Initiative Developed in partnership with Pembiayaan Investasi Non-Anggaran Pemerintah (PINA), a project of the National Development Planning Agency (BAPPENAS), and PT. EBA Indonesia. Sponsors Supported by European Climate Foundation Sponsors Climate Bonds Initiative The Climate Bonds Initiative is an international and infrastructure projects and to support and certification scheme. Climate Bonds investor-focused not-for-profit organisation governments seeking increased capital Initiative screens green finance instruments working to mobilise the USD100tn bond markets investment to meet climate policy against its Climate Bonds Taxonomy to market for climate change solutions. and GHG emission reduction policy and determine alignment and uses sector GHG emission reduction goals.. specific criteria for certification. It promotes investment in projects and assets needed for a rapid transition to a The Climate Bonds Initiative carries out market The Climate Bonds Taxonomy is on the low carbon and climate resilient economy. analysis, policy research, market development; back cover. Please see p. 31 for information The mission focus is to help drive down advises governments and regulators; and on the Climate Bonds Standard and the cost of capital for large-scale climate administers a global green bond standard Certification Scheme. Green Infrastructure Investment Opportunities Brazil 2019 Climate Bonds Initiative 2 Green infrastructure: an opportunity for growth In Brazil, the effects of climate change and particularly pension funds, which are Integrating climate mitigation and resilience the risks associated with a greater than 2°C traditionally allocated to government bonds. criteria into mainstream infrastructure rise in global temperatures by the end of planning would provide Brazil with the As public funding is not sufficient to meet the century are significant: rising sea levels, opportunity to access new capital flows the growing demand for infrastructure increased frequency and severity of storms that are looking for green investments, spending, investments from development as well as droughts, wildfires and changes in especially on the international market. partners and the capital markets are agricultural patterns and yields. Over the past few years, there has been expected to continue to increase in an increasing demand from institutional Investment in low carbon solutions will be importance. According to the World investors, particularly from OECD essential for mitigating climate risk and Bank, annual investment requirements countries, for investment opportunities meeting global emission reduction pathways between 2015 and 2025 amount to that mitigate the risks arising from climate under the Paris Climate Change Agreement. 4.35% of GDP, with higher needs in change, deliver social impact and support Given that climate volatility as a result transportation (1.91% of GDP) than in sustainable development. of global warming is already happening any other sector in infrastructure.2 in Brazil, all new infrastructure should be designed as climate resilient. Over 85% of Brazil’s population currently BRAZIL: COUNTRY FACTS lives in cities and the rapid expansion of the country’s urban areas will require a substantial deployment of infrastructure over future decades. Failure to consider climate change impacts in infrastructure planning poses serious economic risks at a national level, including severe Population: 211,313,335 (2019) economic losses. Population growth rate: 0.75% (2019) Brazil has an estimated Urban population: 87.4% (2019)3 USD1.3tn green investment GDP: USD1.868tn (2018) potential Interest rate (cash rate): 5.5% (September 2019) for energy, transport, Inflation rate: 3.22% (end of Q3 2018) buildings, waste and industrial Government 10Y, M: energy efficiency, 7.36% (end of July 2019) based on its climate Balance of trade: USD32.8bn commitments set out in (end of July 2019)4 the Nationally Determined Contribution (NDC).1 The majority Government debt to GDP: of this is in renewable energy and urban 77.22% (end of December 2018)5 infrastructure, including public transport, Moody’s rating: Ba2 (stable) water and waste. S&P rating: BB- (stable) Infrastructure finance in Brazil has been mostly limited to public financing, including Fitch rating: BB- (stable) financing from the Brazilian Development Bank (BNDES), or individual investors who buy incentivised infrastructure debentures due to a tax benefit. In recent years, the Brazilian Government has been increasingly working on leveraging institutional capital to finance public infrastructure, which includes a new guideline for BNDES’ role and the creation of Investments Partnership Program (PPI) Secretariats to better coordinate ministries and stakeholders. Brazil also has hundreds of billions of dollars in assets under management by institutional investors, Green Infrastructure Investment Opportunities Brazil 2019 Climate Bonds Initiative 3 Green infrastructure: an opportunity for growth Green finance presents an ensure proper maintenance of existing opportunity to improve a infrastructure, by eliminating bottlenecks Brazil’s climate goals challenging macroeconomic and expanding access to social services.11 As part of its NDCs under the Paris outlook This will require improving the government’s Agreement, Brazil has defined the planning capacity, improving the regulatory Buoyed by macroeconomic stability and following mitigation targets: framework and leveraging private capital to favourable demographic trends and external finance investment.12 Green finance presents • 37% reduction in green house gas conditions, Brazil’s strong growth and an opportunity for infrastructure investment, (GHG) emissions, versus 2005, remarkable social progress over the past although there first needs to be a robust by 2025 few decades made it one of the world’s pipeline of green projects that can attract leading
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