About Brazil Green Finance Programme
The Prosperity Fund is a £ 1.2 billion global fund from the British Government that supports increased productivity, economic growth, poverty reduction and expanding international opportunities, including those in the UK, in partner countries. As a Prosperity Fund programme, the Brazil Green Finance Programme seeks to encourage sustainable investments in infrastructure to support Brazil’s economic development. Programme interventions will not only contribute to Brazil’s transition to a more inclusive and lower carbon economy but also support and develop initiatives to reduce inequalities and strengthen gender inclusion.
Brazil is a key partner of the British Government, UK will invest £110m in Brazil by 2023. Investment from the UK will be targeted at specific areas of the Brazilian socio-economic landscape, including: green finance, trade, energy, urban mobility, water, health, education and digital access.
The Brazil Green Finance Programme is one of the UK's Prosperity Fund programmes. In collaboration with organisations from the public and private sectors, both local and international, the programme seeks to encourage sustainable investments in infrastructure to support Brazil's economic development, contributing to its definitive transition to a more inclusive and low carbon economy, in addition to support and develop initiatives to reduce inequalities and gender inclusion.
EY was selected by the UK Government to lead a consortium of organisations to deliver the objectives of the programme. EY is supported by Carbon Trust, IMC and SITAWI as well as a number of local, international, public and private sector organisations. Below are the specialties of each company:
The Programme’s main objective and its expected direct and indirect outcomes are as follows:
UN Sustainable Development Goals
The Sustainable Development Goals (SDGs) were signed in 2015 by the United Nations, succeeding and updating the Millennium Development Goals (MDGs). As part of the 2030 agenda, the SDGs comprise the strategy of 17 objectives and 169 goals by 2030. The SDGs call for global action in areas such as: health, education, reducing inequality, climate action and sustainable infrastructure.
Four years since its adoption, the 2019 report points to progress in some areas, but warns "that the global reaction has not been ambitious enough, leaving the most vulnerable people and countries suffering the most". Therefore, it is urgent that the work to achieve these goals continues.
The Brazil Green Finance Programme supports the implementation of the Sustainable Development Goals (SDGs) and during its implementation will contribute to the delivery of the seven objectives highlighted below:
The programme will be carried out over four interventions:
Intervention 1 – ESG Methodology
The main objective of this intervention is to improve the ESG methodology in the investment processes of two selected development banks. This intervention has three different work fronts: ASG Methodology ASG Products and Climate.
The ESG Methodology, will have two main activities: (i) recommendations for the development banks' processes and policies in the incorporation of ESG metrics and for the organisational and governance structure linked to the responsibilities of the updated ASG evaluation process; and (ii) development of sectorial manuals for the application of ESG criteria in the structuring of infrastructure projects.
ASG Products are composed of two activities: (i) suggestions for improvements in development bank processes to incorporate ESG criteria in their sustainable credit lines; and (ii) report containing the opportunities identified for the development of new financial instruments or improvements to existing instruments. The two fronts dedicated to ASG Methodology will be led by SITAWI.
Climate-related activities, which will be led by Carbon Trust, will support the selected development bank to incorporate global best practices in greening its portfolios and mitigating climate risks.
The methodologies developed to deliver the aforementioned activities in Intervention 1 will be later tested in the Programme’s pilot projects, which will be selected among the Energy and Sanitation sectors.
Bearing in mind that training in green finance and ESG methodology is crucial to ensure its implementation, workshops will be held to present the financial instruments and tools for analysing sustainable infrastructure projects developed. The Programme will also organize events for the dissemination of the ESG Methodology developed among the various entities involved in green financing and financing and development of infrastructure projects in Brazil.
Intervention 2 – Financial Instruments & Pilot Projects
The Intervention 2 will focus on developing the green finance market by improving the policies and capital market mechanisms through the conduction of a national and international market analysis of potential financial instruments and de-risking mechanisms that could be adapted for Brazilian society to improve sustainable infrastructure investment.
EY will lead an assessment to understand what the existing financial alternatives for financing sustainable projects in Brazil are and how they are being used. An international benchmarking survey will also be carried out to verify other potential instruments that can be introduced in the sustainable Brazilian market. Once identified, the instruments will be analyzed to understand which adaptations in the regulatory framework will be necessary for their respective applications.
In addition to the financial instruments that could benefit the Brazilian green market, the programme will work to stimulate the interest of international investors in the local market. For that it is necessary to break down some barriers of entry. The team will work to identify risk reduction mechanisms that could enhance investor interest in sustainable infrastructure projects in Brazil, expanding commercial opportunities.
For those de-risking mechanisms, we will verify the main barriers and through the engagement with local and international players to adapt existing mechanisms or with the support of development banks, governmental institutions, develop new alternatives to enable low risk investments. As for the financial instruments, any necessary regulatory and/or tributary amendments will be aligned with the responsible stakeholders. Furthermore, we will develop tools for monitoring and evaluating the financial instruments and de-risking mechanisms, with support from governmental institutions and other partners related to the Programme.
In addition, in This intervention also will identify two pilot projects from the existing Federal, State and Municipal investment pipeline relating to Energy and Sanitation & Waste Management. For the selection, a long list considering all the eligible projects will be defined, we will then narrow down this list via a criteria developed by XXX that sets out Primary (Climate, Social, Environmental and Gender) and Secondary (International Investor Appetite and Potential Commercial Opportunities) Benefits and Executive Risks (Feasibility and Attractiveness). Once approved, EY will present them to the core stakeholders to collect any insights and considerations, and as soon as we have the projects aligned with the core stakeholders, we will submit the pre-selected projects to the Prosperity Fund Board.
On the occasion of being approved, EY will evaluate the economic-financial feasibility of the pilot projects, review the stablished contract conditions, identify the green funding options, including but not limited to green bonds, mezzanine finance, impact investing fund, gender bonds, guarantees, among others. Then, with the optimal capital structure delineated we will design the finance structure to demonstrate viability of innovative financial instruments. In order to attract investor to both projects, we will conduct national and international roadshows to disclose the projects details, highlighting its contributions to the achievement of the Paris Agreement and SDGs goals.
Finally, we will compile all the funding conditions and options provided by the interested funding institutions, we will run simulations in the developed financial modeling and ESG methodology, verifying the main conditions we will select the best option possible and will monitor the negotiation progress until its conclusion and first disbursement.
These projects will be monitored (financing, climate and gender) while the programme is in place after the completion of the programme period, the consortium will be disbanded, however the tools used to monitor the projects can continue to be used by the projects’ developers and investors.
Intervention 3 – Online Platform
Creation of an online platform to promote sustainable infrastructure opportunities in Brazil aiming to leverage national and international private capital. We will design and deliver an online platform to raise awareness of sustainable infrastructure opportunities with both Brazilian creditors (companies) and UK financial services providers (for example, certifiers) and to promote knowledge with Brazilian consumers / investors about green bonds and other ESG investments.
Besides the development of this platform, this Intervention will also provide incubation support to interested international companies to invest in Brazil. This support will focus mainly in addressing legal issues, environmental permits, gender and social inclusion necessities, existing financial instruments, and de-risking methodologies, all within sectors that are most in need of investment.
In addition, a guidebook will be developed with the main points supported by the incubator so companies can try by themselves to overcome barriers and market bureaucracies. This guidebook will be available at the online platform and will be updated regularly.
Cross-Cutting Intervention – Gender Equality & Social Inclusion
As part of its work, BGFP leverage to promote gender equity in the financial sector, highlighting its importance for the development of our society, both in terms of social inclusion and economic development. To achieve this purpose, the programme will support the development of a gender equity commitment in finance, inspired by the UK Women in Finance charter (implemented in the UK by Her Majesty’s Treasury).
This initiative will ask firms working in the financial sector to commit to improving gender diversity within their organisations and, specifically, to support women’s promotion to and occupation of leadership positions. By taking part in this initiative, firms ultimately pledge their commitment to:
To this end, the BGFP will carry out frequent initiatives with extensive points of contact with Financial Institutions (events and gender posts), in order to disseminate content and share best practice regarding gender equity in the financial sector. In addition, the programme will provide technical assistance to selected financial institutions by developing a customised plan tailored to the reality and challenges specific to the institution, with the overall objective of promoting gender equity within their organisation.
Through tailor made technical assistance, targeted Financial Institutions will be able to engage in discussion on gender equity, assess their ‘gender maturity’ levels and reframe ongoing initiatives. This approach will focus on the internal structure of the targeted Financial Institutions, by fostering a company culture to promote and increase the visibility of gender and inclusion within their own organisations.
This reinforcement will provide a solid foundation, provide a solid foundation for external structural changes, mainly between the institutions involved and their stakeholders and value chains, improving access to products and services for women, and poor or marginalised groups.
Target Financial Institutions will act as propagators of gender equity in the Brazilian context, by showcasing their actions to improve G&I within their organisation, inspiring other Financial Institutions and their respective value chains to also act on gender equity effectively.
This gradual evolution in the gender agenda should have a positive impact in the context of social and gender equality, turning into transformative and sustainable changes across Brazilian society.