Government could reassert its global climate credentials by selling a bond with interest hinging on whether it protects rainforest.
Brazil’s government could reassert its global climate credentials by selling a bond where the interest it pays creditors hinges on whether the country protects the Amazon rainforest. Picture: BLOOMBERG
Such a structure would not be without challenges, not least for a country unfamiliar with ESG bonds and dealing with a broad market rout. But it would signal that Luiz Inacio Lula da Silva, who takes office on January 1, is serious about the country’s new stance on biodiversity and climate change. “A sustainability-linked bond designed to speed the delivery of President Lula’s zero deforestation goal would add real government skin in the game,” said Nick Robins, co-founder of research group Planet Tracker, which has pushed for the structure. It would confirm “Brazil is back with an innovative response to the urgency of the situation.”
Alvaro Vivanco, head of emerging markets and ESG strategy at NatWest Markets, says Brazil’s SLB should commit it to ending deforestation by 2030. If the country deviates from this agreed trajectory, the coupon could be adjusted annually with a maximum change of two percentage points in either direction, he proposes.
There’s also a broader challenge of how to evaluate whether the targets are ambitious enough amid greenwashing concerns. René Lichtschlag, an emerging-markets fixed-income portfolio manager at Union Investment, notes that Uruguay’s debut this year was intended to extend the country’s forest area to 2012 levels by 2025, but it is not clear how big the area is now.
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