Maintaining and protecting Brazil’s forests and natural assets while enabling economic development is a constant discussion in domestic and international forums. The financial sector has also begun to recognize risks climate change poses to investments and taken steps to roll out climate-aligned investment strategies and mobilize new sources of green finance.
This change of direction requires answers to key questions. How can the country attract and bolster investments that promote conservation and align with the goals of the Paris Agreement? What roles should the public and private sectors play? What kind of investments, policies and financial mechanisms are currently being used and how can they be improved to boost Brazil’s green economic growth?
The lack of answers to these questions reveals a critical knowledge gap in the country’s current finance landscape. To overcome this barrier, Climate Policy Initiative/Pontifical Catholic University of Rio de Janeiro (CPI/PUC-Rio) is leading an effort to help fill this gap and support policymakers better understand how to unlock new sources of finance for sustainable land use, by applying its Climate Finance Global Landscape (the Landscape) to the Brazilian context.
Focusing on the Agriculture, Forestry, and Other Land Use (AFOLU) sector, the Brazilian Landscape report will provide a visual and descriptive snapshot of how much and what kind of finance is flowing towards low carbon and resilient climate actions and help identify gaps and opportunities to scale up investments.
In this pioneering effort, CPI’s Brazilian Landscape identifies the dimensions within the financing ecosystem for the AFOLU sector in Brazil while also mapping the financial instruments used in each dimension. The project maps climate finance flows along their life cycle and the values disbursed in recent years based on the ecosystem framework design.
CPI/PUC-Rio’s analysis includes flows related to rural credit which is the main agricultural policy in the country, including credit lines and Brazilian Development Bank’s (BNDES) financial support mechanisms to corporates. It also encompasses analysis of other financial flows, including thematic bonds issuances in domestic and international markets, the Decarbonization Credit (CBIO) purchases, risk management instruments, government expenses with public policies related to climate mitigation-adaptation, and international donations to climate funds such as Fundo Amazonia, Green Climate Fund (GCF), Global Environment Facility (GEF), among others.
Although Brazil is already using climate finance mechanisms, no precise figures are available on the total amount of investment disbursed and its impact on reducing GHG emissions. The Brazilian Landscape report will be the first time that a methodological approach is systematically used to estimate climate finance flows for the AFOLU sector in the country, improving finance tracking and project evaluation methodologies. The results will present a detailed sectoral breakdown for public and private climate finance.
Information that comes with opportunities
Some private financial market players are already signaling ambitions to move capital away from unsustainable activities. There will be growing demand for sustainable investment opportunities that nonetheless continue to meet high risk-return expectations. Given the high carbon sequestration potential of the AFOLU sector, including reforestation, and preservation have not yet been fully explored, increased flows to those sectors could accelerate their development and enhance their visibility in climate finance landscape.
In Brazil, given the current economic trend of decreasing public resources, it is essential to understand how climate finance can play a role in mobilizing private investment in the coming years to enable productivity improves and increase carbon sequestration. In Brazil, there has been discussion on how already climate-aligned public policies, such as the Low-Carbon Emission Agriculture Program (Programa ABC), instruments that promote sustainable land management and conservation, or a broader use of payments for ecosystem services (PES) could be used to attract more investments and be less dependent of public funding.
Regulators are also taking a more active role in aligning climate and financial flows. The Brazilian Central Bank has recently opened a public consultation on two draft regulations that define sustainability criteria to be applied to rural credit operations. The bank also has other public consultations related to regulation on risk management and social, environmental, and climate responsibility.
Brazil has the opportunity to leverage its vast set of land use policies that are organized by a comprehensive and refined conservation policy architecture. By designing and boosting the use of financial instruments, the country has a unique opportunity to promote environmental conservation as investment opportunities.
CPI/PUC-Rio’s Landscape report aims to identify these barriers and initiate a discussion with stakeholders. The first step is to overcome the data gaps and lack of sector categorization that prevent a complete picture of the state of climate finance in Brazil while also presenting some potential paths to address this challenge. Different actors use their definition of climate finance and particular systems and methodologies for reporting climate-related investments, since data collection on its own, often cannot capture it all.
The project’s next step will be to host a technical workshop to present the figures mapped for AFOLU climate finance flows in Brazil to discuss its results, providing a more complete picture of Brazil’s climate finance ecosystem. In the future, this initial work can contribute to the improvement of finance tracking and project evaluation methodologies for other sectors not covered by the AFOLU Landscape. Moreover, the workshop will collect input from sectoral experts, including policymakers and relevant players from the private sector, about the framework developed to categorize the flows and activities financed through the financial ecosystem mapped in the Landscape.
Brazil has a vast potential to leverage forestry, agricultural, and natural resource management practices to generate income. This will require establishing solid and well-defined goals, with a clear timeline and financial flow transparency. Reliable access to and analysis of financial data will be crucial to developing a robust climate finance ecosystem in Brazil, especially to scale up investments to the AFOLU sector.