Brazil launches Sovereign Sustainable Bond Framework

The Federal Government launched today, September 5th, 2023,  Brazil’s Sovereign Sustainable Bond Framework, a reference document for the issuance of sovereign debt securities using resources backed by budgetary expenses that directly contribute to promoting the country's sustainable development. This initiative reaffirms Brazil's commitment to sustainable policies, aligning itself with the growing interest of non-resident investors and the expansion of thematic bond markets worldwide.

The Framework was developed by the Sovereign Sustainable Finance Committee (CFSS), involving collaborative efforts from various federal government agencies that comprise it. The development of the Framework also received support from the Inter-American Development Bank (IDB) and the World Bank.

Inter-American Development Bank: "The disclosure of Brazil’s Sovereign Sustainable Bond Framework marks a significant step in Brazil's national finances and offers a unique opportunity to global investors. This advancement enables the raising of funds dedicated to policies that genuinely promote sustainable and inclusive development," says the representative of the Inter-American Development Bank in Brazil, Morgan Doyle. "IDB takes immense pride in contributing to the creation of this milestone and remains a partner to Brazil in sharing technical expertise and the best evidence".

World Bank: "We commend the Brazilian government for this Sovereign Sustainable Bond Framework, which demonstrates Brazil's commitment to addressing environmental and social challenges and will enable the government to diversify its investor base and optimize its financing strategy in a way that aligns with its needs. As a global leader in sustainable finance and a pioneer in green bonds issuance, the World Bank has been pleased to work together with the government and share its knowledge and expertise." Says the director for Brazil at the World Bank, Johannes Zutt.

The document follows international best practices and has been certified by an external verifier (Second Party Opinion - SPO), a procedure that ensures the framework aligns with the principles established by the International Capital Market Association (ICMA).

Brazil’s Sovereign Sustainable Bond Framework contains the rules that Brazil sets for the National Treasury to issue sustainable debt instruments. These instruments will enable the country to raise funds associated with financing budgetary programs that generate positive environmental and/or social impacts. By issuing this type of bond, the country aims to promote the transition to a greener, more inclusive, and equitable economy.

The document establishes the obligations that Brazil must comply with as an issuer or borrower of sovereign sustainable bonds. These obligations include transparency in defining and selecting expenses to be financed  and in the allocation of funds raised through sustainable bonds. It also involves the disclosure of qualitative and quantitative indicators, when available, for measuring the environmental and/or social impacts of these expenses.

In addition to the potential to diversify the investor base for public debt, the launch of the Framework also represents the first step in creating a reference in the foreign market for the Brazilian private sector, stimulating new issuances in the corporate sector with effects on the entire sustainability agenda in Brazil and worldwide.

For September, a series of meetings by the National Treasury with global investors is scheduled to take place between the 11th and 15th. These meetings aim to present and provide clarifications regarding Brazil’s Sovereign Sustainable Bond Framework.

The Framework

Brazil’s Sovereign Sustainable Bond Framework is divided into seven sections, which encompass, among other topics, the main concepts used in the document and the presentation of a summarized overview of the country's public policies. These includes Brazil's commitments and current state in the environmental, social and governance agenda, as well as its sustainable finance agenda.   

The document lists the eligible expenses within the scope of the issuance of sustainable bonds and the categories of activities associated with environmental and social benefits. Among the initiatives labeled as green, the preservation of native biomes, including deforestation control in the Amazon and Cerrado regions, support for Fundo Clima, renewable energy production, energy efficiency and sustainable natural resource management.      

The Framework also defines the process for assessing and selecting eligible expenses for financing through sustainable bonds, ensuring that the raised funds are directed to eligible and high-impact expenses. It outlines procedures for managing the funds raised and the parameters adopted for monitoring, measuring and publishing allocation and impact reports of the funds raised, as well as the possibilities for external verification.

The Sovereign Sustainable Finance Committee

Brazil’s Sovereign Sustainable Bond Framework was developed by the Sovereign Sustainable Finance Committee (CFSS), a permanent collegiate body established by Decree No. 11,532/2023. Its main objective is to plan, implement and monitor the framework and emissions related to sustainable bonds. The committee plays a crucial role in the governance structure of these emissions, as it is responsible for overseeing the allocation of resources and providing transparency on the impacts of selected projects.

The establishment of the Sovereign Sustainable Finance Committee is in line with international best practices. In the governance structure of countries that already have a strategy for thematic issuances, it is common to define a committee for the development of the Framework, evaluation of projects and selection of budgetary actions eligible for their respective frameworks. This is necessary due to the importance of maintaining a constant flow of information between the sectoral bodies involved in sustainable projects and the issuer of bonds.

The CFSS is chaired by the National Treasury Secretariat of the Ministry of Finance and is composed of 10 other representatives: Ministry of Agriculture and Livestock; Ministry of Science, Technology, and Innovation; Ministry of Agrarian Development and Family Agriculture; Ministry of Social Development, Assistance, Family and Fight against Hunger; Ministry of Development, Industry, Trade and Services; Office of Economic Policy of the Ministry of Finance; Ministry of Integration and Regional Development; Ministry of Environment and Climate Change; Ministry of Mines and Energy; and Federal Budget Secretariat of the Ministry of Planning and Budget.

Check out the testimony from both the Minister of Finance, Fernando Haddad, and the Secretary of the National Treasury, Rogério Ceron, about the importance of the initiative.